Repo Rate vs Reverse Repo Rate

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• MCLR increased by 5 bps across tenures by Bank of Baroda

  Bank of Baroda has now increased the marginal costs of funds based lending rates by 5 basis points across various tenures. The decision comes after a similar move was made by the State Bank of India and ICICI Bank, two of the bigger rivals of the bank. The one-year MCLR of Bank of Baroda will now be at 8.55 percent. The MCLR for the different tenures ranges between 8.05 percent and 8.4 percent. The new rates will be effective starting from 07 September. Earlier this month, State Bank of India raised the one year MCR by 20 bps in September. The one year marginal cost of funds based lending rates now stands at 8.45 percent. ICICI Bank also increased the rate by 15 bps, with the MCLR now standing at 8.55 percent. The constant rate increase is to cope up with the increasing cost of funds and the non-performing assets of the banks.

  

  12 September 2018

• Government to have talks with RBI to leave capital with banks

  The government is all set to have talks with the Reserve Bank of India to relax capital norms that are in place for banks and help bring them in line with much less stringent Basel III guidelines. The move is expected to free up around Rs.60,000 crore of capital for the state owned lenders. This will help them step-up the lending operations in order to provide a much needed boost to revive the economy and also reduce the pressure on the government to provide capital and improve the condition of weaker banks. The money that the banks need to set aside as prescribed by the Reserve Bank of India now stands at 5.5% according to the Tier-I ratio. This will come down to 4.5% under the Basel III norms. By taking this move and freeing up some capital, it is expected that about Rs.6 lakh crore worth of lending can be achieved without the additional need for provisioning. The losses incurred in the last year combined with the expected high losses in the current fiscal along with the recall of additional tier-1 instruments, it is expected that the Rs.2.1 lakh recapitalisation programme announced in october last year might be insufficient to meet the capital requirements.

  

  9 August 2018

• Banks put in a sport due to RBI regulations on auditors

  Many banks have approached the PwC and other firms seeking clarity on the implications of the clause that could stop audit firms who were accused for irregularities from servicing financial situations. The central bank recently introduced a framework for statutory auditors and the possible actions that can be taken against these audit firms in case there is a time lapse.

  

  12 July 2018

• Bank of China gets RBI approval to set up branch in India

  Bank of India have been issued a license to set up a branch in India by the Reserve Bank of India. This move comes after the Prime Minister of India made a commitment to the Chinese President to set up Bank of China branches in India in the SCO summit held recently. Both the countries have been keen on improving and expanding their economic ties despite both parties having disagreements on certain issues.

  

  6 July 2018

• Lending rates hiked by 10 basis points by Punjab National Bank

  Punjab National Bank has raised the marginal cost of funds-based lending rates by 10 basis points. This hike will be for select tenors and will be ranging from 0.05 - 0.10 percent. The revised rates will be implemented starting 01 July 2018. Loans with a 6 month tenor will increase by 0.10 percent to 8.40 percent. Borrowing rates for loans with tenors longer than a year will increase by 0.05 percent and will now range between 8.45 percent and 8.75 percent depending on the length of the tenor.

  

  2 July 2018

• Effective monetary tools used by RBI for liquidity management

  RBI has raised its policy repo rate to 6.25% by 25 basis points recently. In fact, this is the first time in the past 4 years that RBI has hiked the interest rate. Just like the policy repo rate RBI has some other effective monetary tools at its disposal to retain liquidity in the banking system. Here are the details of the key RBI monetary tools:

  Cash Reserve Ratio - Cash Reserve Ratio (CRR) is referred to the portion of cash deposits that banks hold with the RBI. When the CRR is reduced banks have more money in deposit, whereas when the CRR is increased banks have lesser amount to invest.

  Statutory Liquidity Ratio - The percentage of deposits that banks invest in government securities with the RBI is termed as the Statutory Liquidity Ratio (SLR). At present, the SLR is 19.5% which means for a deposit of Rs.100 received from a customer, the banks have to contribute 19.5% in government securities.

  Repo Rate - The fixed interest rate at which the banks can borrow money from the RBI by lending their surplus government securities is known as the Repo Rate. The more the repo rate, the costlier are the loans for the customers.

  Reverse Repo Rate - This is the rate of interest that RBI offers to the banks for borrowing their surplus funds for a short period of time. Currently, the reverse repo rate is 6%.

  

  26 June 2018

• Impact of RBI’s repo rate hike

  The Reserve Bank of India’s Monetary Policy Committee (MPC) raised the repo rate by 25 basis points on Wednesday. The repo rate is essentially the short-term lending rate at which money is provided as debt to commercial banks. This is the first time the repo rate has gone up since the current government came into power. The rates were on hold since the last cut, which took place in August 2017.

  The hike in repo rate is considered to be a precautionary measure against rising commodity inflation and volatile crude prices across the world.

  The MPC’s decision was unanimous, as both Pami Dua and Ravindra Dholakia were in conformance to the same.

  RBI now expects that average inflation will be between 4.8% and 4.9% in the first 6 months of the financial year 2018-19. The rate of inflation will stand at 4.7% in the latter half of the fiscal.

  

  7 June 2018

• RBI to ease pressure on short term yields

  The Reserve Bank of India (RBI) has decided to ease the rules applicable for foreign investments in government and corporate bonds. Through this revision, the central bank has also made provisions for investments to be made in shorter tenure bonds by foreign investors. According to bond market participants, this will lead to a drop in the short term rates. It could relieve the Indian rupee as well, which has already dropped by more than 4 percent this year.

  Another major change made by RBI is that foreign investors will be allowed to hold up to 30 percent of a security now, as opposed to the 20 percent which was offered earlier.

  

  30 April 2018

• Growth rate of bank deposits lowest in FY2018

  According to RBI data, as on 30 March 2018, the outstanding deposits had a year-on-year growth of 6.7% at Rs.114.75 lakh crore. This is the slowest growth rate in aggregate deposits of scheduled commercial banks. The reasons behind the slow growth are the sharp increase on bank deposits following demonetisation and the low interest rates on FDs that had customers moving onto equity mutual funds. Equity markets and debt mutual funds experienced record inflows in FY2018. These two reasons justify the low bank deposit growth rate in FY2018. Now, banks have begun increasing the interest rates on bulk term deposits and retail term deposits, and have moved on to increasing their MCLR rates as well. The bank deposits are expected to grow in FY19 while equity markets and debt mutual funds are likely to witness less returns.

  

  18 April 2018