RBI Restricts Variations- Waits for Shift in Governance

The RBI on April 1, 2014 announced the first bi-monthly monetary policy, though no significant amendments have been made in comparison to the previous measures. I will discuss the prominent elements and then would come to a conclusion. The Repo rate remains unchanged at 8 percent. The Cash Reserve Ratio too remains unaltered at 4 percent, policy repo rate under LAF at 8 percent, and marginal standing facility and bank rate at 9 percent. However the liquidity provided under 7-days and 14-days term repos has been enhanced from 0.5 percent of NDTL to 0.75 percent. In the same context, liquidity provided under overnight repos under the LAF has been trimmed down from 0.5 percent of bank-wise NDTL to 0.25 percent.

The measures of the RBI concentrate at maintaining the economy on a disinflationary route wherein it is likely to hit 8 percent CPI inflation by January 2015 and 6 percent by January 2016. The GDP growth is projected to be around 5.5 percent for the FY 2014-15 promising little increase from below 5 percent during the FY 2013-14. This recovery would be contingent to the trust of consumers in the investment domain with improvements in the industrial sector. With uncertainty of south-west monsoon, the enhancement delivered by the agriculture sector in 2013 may fade. Discussed hereunder are the policy frameworks for different sectors of the economy. Post consulting the EC, the RBI can announce in-principle approval of new licenses. Modules like on-tap licensing and differentiated bank licenses can be introduced which will also embrace mergers in the banking sector.

By the end of May this year, draft framework for dealing with D-SIBs (Domestic Systematically Important Banks) is anticipated to be released. By the same time, Liquidity Risk Monitoring tools and guidelines related to Basel III Liquidity Coverage Ratio can also be expected. Guidelines would soon be issued that would facilitate banks to extend partial credit enhancements to corporate bonds. It is suggested that under the supervisory review of the RBI, banks must work to toughen governance standards to contain increasing NPAs. It is proposed to introduce, for Primary Dealers, a robust market making scheme wherein specific securities would be allocated to them. Plus, performance of Primary Dealers would be under review.

Foreign investment would be eased along with trouble-free KYC norms for opening of bank accounts by foreign portfolio investors. To allow Foreign Institutional Investors hedge their currency risk with use of exchange traded currency futures in the domestic exchanges, the RBI is in consultation with SEBI. Refined guidelines would be in place for commercial banks with a view to overcome the challenge of cash management of Business Correspondents. MSEs can expect some favors as banks have been asked to review their credit and loan policies for this sector. To encourage consumer protection, effective guidelines are proposed to be implemented in view of domestic as well as international best practices.

Now, what are the expectations from the upcoming bi-monthly policy review scheduled in June 2014? Definitely, RBI which has maintained status-quo with repo rates and bank rates would align the policies in view of the political environment then. The prevailing economic and political conditions do not permit rate cuts, however the picture would change, rather advance with the formation of a stable union government. Also, the industrial policies and bold decisions of the new government can allow RBI to reconsider bank rates. A lot would also depend upon the climatic and monsoon conditions that would affect the agricultural sector either adversely or favorably. Lastly, I would conclude with a view that the central bank must also tighten the handling of NPAs by banks which has been a prominent drawback in the efficiency of the banking sector.

85 thoughts on “RBI Restricts Variations- Waits for Shift in Governance

  1. Hardev

    Just wanted to say how much we appreciate the tremendous amount of hard work and
    effort you all put in to producing this website.
    It is a great credit to everyone and I am sure will be a great success.

    Reply
  2. Satbir Singh Bedi

    NPAs accumulation is due to the inefficiency of the Public Sector Banks. The banking system needs to be toned up and NPAs must be recovered because their total value is beyond imagination of a common Indian.

    Reply
  3. George

    I am sure this piece of writing has touched all the internet viewers,
    its really really pleasant article on building up new weblog.

    Reply
  4. Eklavya

    I just want to mention I am all new to weblog and truly savored this blog site.
    Likely I’m want to bookmark your blog .
    You actually have terrific articles.
    With thanks for sharing with us your web site.

    Reply
  5. Alok

    Just finished reading your article and wanted to congratulate you on your compelling abilities. Good luck for the future work.

    Reply
  6. Bhushan

    I am sure this piece of writing has touched all the internet viewers, its really really pleasant article on building up new weblog.

    Reply
  7. Pushpjit

    I do agree with all the ideas you’ve offered on your post. They’re very convincing and can definitely work. Thank you for the post.

    Reply
  8. Siraj Uddin

    Hurrah, that’s what I was seeking for, what a material! present here at this web site, thanks Dr gupta for this post.

    Reply
  9. Sachin

    I’m amazed, Ӏ must say.
    Rarely ԁo I come across a blog that’s both equally educative ɑnd amusing, and աithout ɑ doubt, үou’ve hit tҺe nail on the head.
    The problem іs something whіch not enough folks ɑге speaking intelligently ɑbout.
    I’m νery happy that I stumbled across Һis Ԁuring my search foг somethning relating to tɦіs.

    Reply
  10. Vinod

    This is undoubtedly the most clean and clear form of writing that have seen so far. Congrats to attain this level.

    Reply
  11. Ram Mukut

    Good day! I just would like to give you a big thumbs up for your excellent information you have right here on this post. I will be coming back to your blog for more soon.

    Reply
  12. V Nath Ayyar

    Hello my friend!
    I wish to say that this article is awesome, nice written and include almost all important infos.
    I would like to peer extra posts like this .

    Reply
  13. Arun

    Hello my friend! I wish to say that this article is amazing, nice written and come with approximately all important infos. I would like to see more posts like this .

    Reply
  14. Anand

    This is really interesting, You’re a very skilled blogger. I have joined your rss feed and look forward to seeking more of your great post. Also, I have shared your web site in my social networks!

    Reply
  15. D.L. Chauhan

    I just had to drop you a line to let you know that John and I think that the website is BRILLIANT!!!!!!!!!!!!!!!!!!!!!!!!!!! Well done.

    Reply
  16. T.C.A. Paul

    Spot on with this write-up, I absolutely believe that this amazing site needs much more attention. I’ll probably be returning to read through more, thanks for the advice!

    Reply
  17. Subhash

    Thank you for the introduction to the new website. I’ll be re-visiting it many times, but on a fast run-through it looks really great.

    Reply
  18. S.A. Mahesh

    Hello thеrе!
    I could have sworn I’ve been to your blog befoгe but after browsing through a few of the posts I realized it’ѕ neѡ to me.
    Regardless, I’m certainly haƿpy I ѕtumbled upon it anԀ I’ll be book-marking it and checking back rеgularly!

    Reply
  19. Karan

    It’s actually a nice and helpful piece of information.
    I’m satisfied that you just shared this helpful info with us.
    Please keep us informed like this.

    Reply
  20. M.K. Chauhan

    Thanks for the marvelous posting!
    I genuinely enjoyed reading it, you are a great author.
    I will always bookmark your blog and will come back very soon.
    I want to encourage that you continue your great work,have a nice day!

    Reply
  21. Didier J.

    Hello, I am so happy I found your weblog.
    I’m really appreciating the commitment you put into your site and in depth information you offer.
    This has been so particularly generous with people like you to supply openly all that most of us would’ve offered for sale for an e book in order to make some dough on their own, even more so seeing that you could possibly have tried it if you ever decided.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *