RBI'S ANNUAL MONETARY POLICY REVIEW: PROPOSALS & GUIDELINES

RBI asks banks to allot Unique Customer Identification Code (UCIC) to existing individual customers by end-April, 2013. The unique number will help identify a single customer for various services in a bank.

RBI to issue detailed guidelines on the 'basic savings bank deposit account' with certain minimum common facilities without the requirement of minimum balance to all customers.

RBI forms committee chaired by KC Chakrabarty to study the increase in demand for coins, and supply and distribution bottlenecks to ensure regular and smooth availability of coins. The panel is expected to submit its report by end-May, 2012.

RBI proposes to set up a working group to assess feasibility of introducing more long-term fixed interest rate loan products by banks. Currently, banks offer fixed rates on deposits and mostly floating rates on home loans, which expose borrowers to uncertain rate movements.

RBI forms a working group under the chairmanship of deputy governor Anand Sinha to study the methodology of the determination of credit spreads and its components and suggest measures for appropriate pricing of floating rate loan products to improve transparency in pricing and loan documentations. The group is expected to submit its report by end-July, 2012.

RBI says policy on compensation for private and foreign banks will come into effect from FY13. The policy will cover effective governance of compensation, alignment of compensation with prudent risk-taking and disclosures.

RBI forms a working group under the chairmanship of R Gandhi to enhance liquidity in g-sec and interest rate derivatives markets. The panel will submit its draft report to RBI by end-May, 2012. RBI is developing web-based access to the NDS-order matching (OM) system for secondary market transaction, which may be implemented by end-June, 2012.

RBI forms a working group chaired by KUB Rao to study lending by NBFCs against gold. The committee is expected to submit its report by end-July, 2012. The panel will study practices of NBFCs involved in lending against gold, assess trends in demand for gold loans and study how it influences gold imports, among other things.

RBI says the working group chaired by Usha Thorat on regulatory framework for NBFCs to release draft guidelines by end-June, 2012. The group had submitted its report in August, 2011.

RBI says the working group chaired by B Mahapatra to study guidelines on restructuring of advances by banks and financial institutions and is expected to submit report by end-July, 2012. The group, formed in January 2012, will suggest revisions taking into account the best international practices and accounting standards.

RBI forms committee to study supervisory policies, procedures and processes. The panel, to be chaired by KC Chakrabarty, is expected to submit its report by end-July. The committee will look at devising rating methods to capture fair, transparent and non-discriminatory pricing.

RBI says it will issue guidelines on licensing to set up new urban co-operative banks (UCB) by end-June, 2012. In August 2011, an expert panel, chaired by YH Malegam, on granting new licences for setting up UCBs submitted its report.

RBI asks a state-level banking committee to prepare a roadmap for unbanked villages with a population of less than 2,000 and notionally allot these villages to banks to provide services in a time-bound manner. 

SOURCE: http://economictimes.indiatimes.com/news/economy/policy/rbis-annual-monetary-policy-review-proposals-guidelines/articleshow/12711201.cms

RBI CUTS BANK RATE TO 9 PER CENT

The Reserve Bank today issued a notification to reduce the bank rate or the interest the banks and financial institutions pay to the central bank on borrowed funds to 9 per cent from 9.5 per cent now.

"The Reserve Bank of India (RBI) has decided to lower the Bank Rate to 9 per cent per annum from 9.5 per cent per annum with effect from April 17, 2012," the RBI said in a statement.

The notification follows the announcement made by RBI Governor D Subbarao in the annual credit policy which was unveiled yesterday.

In line with 0.5 per cent cut in short-term lending (repo) rate, the RBI also reduced the bank rate to 9 per cent.

The RBI decided to reduce the benchmark repo rate to 8 per cent from 8.5 per cent, after a gap of three years, to promote growth which during 2011-12, which slipped to a three year low of 6.9 per cent.

The central bank has pegged the GDP growth rate for the current fiscal at 7.3 per cent.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/rbi-cuts-bank-rate-to-9-per-cent/articleshow/12720798.cms

RBI ASKS BANKS TO SET UP PROCESS TO IDENTIFY NPAS

The Reserve Bank of India has asked banks to install a robust mechanism to identify stressed accounts and promptly restructure viable cases to preserve the economic value.

The central bank has also mandated banks to have a proper system-generated segment-wise data on their NPA accounts, write-offs, compromise settlements, recovery and restructured accounts. The move comes after the central bank said in its annual financial inspection in March that restructuring facilities are not extended to small accounts.

Corporate loan accounts that needed to be restructured hit a nine-year high of 50,250.22 crore in 2011-12 with the corporate debt restructuring (CDR) cell.

Rising interest rates and the increasing debt burden have affected the repayment capacity of companies forcing RBI to review the NPA management mechanism in banks.

The central bank is expected to issue detailed guidelines separately. In January, the central bank constituted a working group to review guidelines on restructured advances. The report is expected to submit its recommendations by end of July.

"CDR has increased very significantly. It does represent a stress in the system. But, at the same time, the evidence shows that the accounts have been restructured and have remained standard after restructuring. 

Out of this, the slippage is not more than 15% and even after taking an outer limit of 20%, 80% of the restructured assets are proved to be good assets," said Anand Sinha, deputy governor, RBI. "But, if the account is under stress you only have two options: either call back the advance, which is not correct if the account is viable, or if it is not, you have to restructure it. So, rescheduling should not be seen with negativity," said Sinha. RBI's working group has had three meetings so far.

"The issues discussed revolve around the sacrifice banks have to make in a restructuring. Members of the committee are taking into account the international best practice,'' said a banker.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/rbi-asks-banks-to-set-up-process-to-identify-npas/articleshow/12711148.cms

LOWER TRANSACTION COSTS ON ATMS TO HELP PSBS SAVE 3K CRORE PER YEAR

State-run banks may get to save about 3,000 crore a year as the transaction rate for ATMs has nearly halved. 

This follows the finance ministry's directive to the banks to share the new ATMs that they set up under the 'lead bank' arrangement. The government is set to roll out a similar arrangement for business correspondents across the nation as well, allowing a single bank to bid for the entire district.

The government, which had invited bids for the 5,000 ATMs across Maharashtra, has been able to reduce cost of a transaction for on-site ATMs to 8.30, from as much as 16 for small banks, a finance ministry official said.

"We are also expecting revenue from advertising at the ATMs, which will help recover 20%-30% of the cost," the official added.

An ATM is viable only when it clocks an average of about 150 transactions per day.

State-run banks owned 41.5% of the 60,153 ATMs across the country at the end of last March, government data shows.

The ministry expects the bid price to go down further. "The cost will reduce by another 30% if there are 200 transactions at a particular ATM," the official said.

As part of its measures to cut down the fixed costs of banks, the ministry had recently asked the public sector banks to provide details of all branches that have not made profit for the past two fiscals.

During the current fiscal, the ministry has linked the capitalisation programme to the profitability of the banks. It has directed all 21 state-run banks to improve their performance, and has set up new parameters to measure their financial and functional efficiency.

Besides, it has asked the banks to improve their low-cost savings and current deposits, employee-branch ratio and profit per employee. It has also directed the banks to post 80% of their total staff in the branches, leaving just 20% for the head offices.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/lower-transaction-costs-on-atms-to-help-psbs-save-3k-crore-per-year/articleshow/12710357.cms

CREDIT POLICY POSITIVE FOR BANKS

A cut in RBI's policy rate was widely expected, but the quantum of repo rate cut came as a surprise to the market.

The cut in repo rate, the rate at which the banks borrow from RBI, will prompt banks to in turn reduce their lending rates.

A cut in lending rates may not only revive the credit off-take, but also partly allay the asset quality concerns for banks. The margins of the banks may also improve as the cost of borrowing comes down.

STOCKS RISE

While banking stocks reacted positively, given the neutral stance of RBI on further rate cuts, the gains were limited. Going by the Overnight Index Swap, the market is discounting another 25 basis point decline in rates over the next one year.

The public sector banks with a higher exposure to government securities may benefit from price gains on their books. However, the fall in rates will help smaller private banks which rely more on bulk deposits, immediately save on cost of funds.

Rates on certificate of deposit are already down from 11.5 per cent to 9.2 per cent in less than 20 days following the liquidity pressures partly receding and also reacting to the rate cut.

IMPROVEMENT IN MARGINS

Banks may choose to pass on the entire rate cut to their clients to stimulate offtake. Banks hiked lending rates by 180 basis points during the last fiscal, according to the RBI, in line with 175 basis points hike in its repo rate. The marginal fall in cost of funds due to release of cash reserve ratio may also prompt a cut in lending rates once liquidity eases.

Banks, whose margins have positively benefitted by close to 10 basis points due to the cut in the reserve ratio, may further see their margins improve due to fall in repo rates.

For one, the deposit rates tend to fall ahead of lending rates. Secondly, given that yields on investments are sticky, this will positively impact the margins.

ASSET QUALITY TO IMPROVE

Lower rates will also provide some relief to banking sector on rising bad debts. As of December 2011, the gross NPA ratio of all listed banks was 2.8 per cent which is likely to have risen by March.

The RBI notes that, as of March 2011, corporate sector had an interest to profits ratio of 20 per cent. This rose to 25 per cent by September 2011. Weakening demand could further push up the ratio. Given the significant impact of interest costs on profits, a rate cut may lower the interest outgo and revive the asset quality cycle of banks.

With RBI projecting slightly higher GDP growth (7.3 per cent) than last fiscal, the top-line growth may also marginally revive for the corporate sector.

SOURCE: http://www.thehindubusinessline.com/industry-and-economy/banking/article3324539.ece

RBI HAS BETTER UNDERSTANDING OF GROWTH, INFLATION NOW - DUVVURI SUBBARAO

The Reserve Bank of India cut its repo rate by 50 basis points (bps) on Tuesday and not by 25 bps as widely expected, because it has a better understanding of growth and inflation than during the March policy, Governor Duvvuri Subbarao said.

He said a bigger cut in the key interest rate would ensure more effective monetary policy transmission.

The wholesale price index, India's main inflation indicator, rose an annual 6.89 per cent in March, higher than 6.70 per cent rise estimated by analysts, but lower than 6.95 per cent in February.

The country's industrial output rose a much slower-than-expected 4.1 per cent in February from a year earlier, recent data showed.

SOURCE: http://economictimes.indiatimes.com/news/economy/policy/rbi-has-better-understanding-of-growth-inflation-now--duvvuri-subbarao/articleshow/12703423.cms and RBE � s g �L 8� rong message to cut interest rates.

He said IDBI Bank would take a view on the interest rate at its Asset Liability Committee (Alco) meeting in the next few days.

According to Indian Overseas Bank Executive Director A K Bansal, both deposit and advances rates would come down.

Base rate of banks vary from 10 per cent to 12 per cent, while home loan rates are between 10.75 per cent and 14 per cent. Auto loans range from 12 per cent to 15 per cent.

Bansal said there would be reduction in fixed deposits rates, followed by cut in lending rates.

On the quantum of reduction, he said Alco of the bank would take a call taking into consideration all the aspect. 

Terming the policy action as "pleasant surprise", Dena Bank Executive Director A K Dutt said the reduction in RBI is more than what was being expected in the market. It was widely anticipated that there would be a cut of 0.25 per cent in the policy rate.

"Since the cost of raising fund has come down, there would some softening of interest rates. When and how much would depend on bank to bank," Dutt said.

There would be reduction in fixed deposit rates as well, he added. 

SOURCE: http://economictimes.indiatimes.com/news/economy/policy/lending-rates-likely-to-come-down-by-0-25-pc/articleshow/12702446.cms

LENDING RATES LIKELY TO COME DOWN BY 0.25 PC

Home, auto and corporate loans are likely to become cheaper as the Reserve Bank today slashed the short term lending rate sharply by 0.50 per cent to 8 per cent, signalling banks to cut rates.

The reduced cost of borrowing is expected to be passed on partially by banks to borrowers in the form of lower interest rate on loans.

"The RBI has taken a bold step. The reduction in the policy rate by RBI would translate into lowering ofinterest rates. Base rates are expected to come down by about 25 basis points," Canara Bank Executive Director A K Gupta told PTI.

Base rate is the minimum lending rate below which banks can't lend. Lowering that would mean reduction in all loans.

To bring down the cost of borrowings for banks, RBI slashed short term lending (repo) rate after a gap of 3 years.

Besides, RBI's move to ease liquidity situation would result in the infusion of much needed cash flows into the banking system, he said.

In the Annual Monetary Policy, 2012-13, RBI doubled borrowings under the Marginal Standing Facility for banks to 2 per cent of their deposits with immediate effect to ease liquidity. It also permitted banks to borrow under the MSF even if they have excess government securities holdings.

IDBI Bank Executive Director R K Bansal said the monetary action will help boost growth and RBI has given a strong message to cut interest rates.

He said IDBI Bank would take a view on the interest rate at its Asset Liability Committee (Alco) meeting in the next few days.

According to Indian Overseas Bank Executive Director A K Bansal, both deposit and advances rates would come down.

Base rate of banks vary from 10 per cent to 12 per cent, while home loan rates are between 10.75 per cent and 14 per cent. Auto loans range from 12 per cent to 15 per cent.

Bansal said there would be reduction in fixed deposits rates, followed by cut in lending rates.

On the quantum of reduction, he said Alco of the bank would take a call taking into consideration all the aspect. 

Terming the policy action as "pleasant surprise", Dena Bank Executive Director A K Dutt said the reduction in RBI is more than what was being expected in the market. It was widely anticipated that there would be a cut of 0.25 per cent in the policy rate.

"Since the cost of raising fund has come down, there would some softening of interest rates. When and how much would depend on bank to bank," Dutt said.

There would be reduction in fixed deposit rates as well, he added. 

SOURCE: http://economictimes.indiatimes.com/news/economy/policy/lending-rates-likely-to-come-down-by-0-25-pc/articleshow/12702446.cms

INTEREST RATES WILL NOT GO DOWN IMMEDIATELY AFTER RBI RATE CUT, SAY TOP BANKS

The Reserve Bank of India's (RBI) move on Tuesday to cut key rates for the first time in three years by a sharp 50 basis points will provide the much needed respite to consumers as top banks said interest rates would go down, but not too soon. 

"Of course, the rate cuts will be passed on," said Pratip Chaudhuri, chairman, State Bank of India.

"Let me admit, after the last CRR (Cash Reserve Ratio) cut of 75 basis point also the transmission has not happened fully because that came in the month of March. So, we were just slightly watchful of the liquidity situation," he said, adding that SBI might do a comprehensive cut but not across the board but in particular segments.

"Largely in our case it would be for SMEs but it is for our asset liability committee which will be meeting today (Tuesday) evening and soon thereafter to take a call," he said.

Chanda Kochhar, managing director and chief executive officer of ICICI Bank, said the reduction in the interest rates would be across deposits as well as lending rates.

"Clearly it will have to be across both, deposits and lending rates and in fact the deposit rate decrease is absolutely required because otherwise the costs of funds for the banks would not go down."

HDFC Bank Managing Director Aditya Puri said both deposits and lending rates will come down "but it would probably take a while because after all the banks will only bring it down when you ask a question on the base rate, the base rate depends on the function of cost.

The RBI decision would result in interest rates falling on housing, automobile and commercial loans.

Currently, the base rates of these banks range from 10 to 12 percent while they offer loans such as home loan at an interest rate between 10.75 percent and 14 percent and auto loans between 12 and 15 percent.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/interest-rates-will-not-go-down-immediately-after-rbi-rate-cut-say-top-banks/articleshow/12704451.cms

FINAL NORMS ON IMPLEMENTATION OF BASEL III BY APRIL-END: RBI

The Reserve Bank today said it will come out with the final guidelines on implementation of new global risk mechanism, Basel III capital regulations by end of the month.

"It is proposed to issue the final guidelines on the implementation of Basel III capital regulations by end-April 2012," RBI said in its annual credit policy for 2012-13.

Last year, RBI issued draft guidelines on implementation of Basel III capital regulations envisaging that the equity capital of a bank should not be less than 5.5 per cent of risk-weighted loans.

The guidelines provide a roadmap for smooth implementation of Basel III capital regulations in a phased manner.

"The RBI is also in the process of estimating, on the basis of data collected from banks, the likely impact of the proposed Basel III norms on banks' capital position and leverage," it said.

It is proposed that the implementation period of minimum capital requirements and deductions from Common Equity will begin from January 1, 2013 and be fully implemented as on March 31, 2017, it said.

However, it said, the capital conservation buffer requirement is proposed to be implemented between March 31, 2014 and March 31, 2017.

Besides, the RBI has asked banks to bring down interest variation on term deposits irrespective of the amount.

The RBI has stipulated that banks should not discriminate in the matter of interest rate paid on deposits, except in respect of fixed deposit schemes specifically meant for resident Indian senior citizens and single term deposits of Rs 15 lakh and above.

However, it is observed that there are wide variations in banks' retail and bulk deposits rates, making it unfair to retail depositors, it said.

Further, banks are offering significantly different rates on deposits with very little difference in maturities. This suggests inadequate liquidity management system and inadequate pricing methodologies.

SOURCE: http://economictimes.indiatimes.com/news/economy/policy/final-norms-on-implementation-of-basel-iii-by-april-end-rbi/articleshow/12705540.cms

RBI ANNOUNCES MONETARY POLICY FOR 2012-13

Reserve Bank of India has announced the monetary policy for  2012-13. We are providing link herebelow for the full document.

URL: http://rbi.org.in/scripts/NotificationUser.aspx?Id=7136&Mode=0