RBI cuts key lending rate by 25 basis points

Mumbai, April 5 (IANS) India’s central bank on Tuesday cut its key lending rate by 25 basis points (bps) in line with overall expectations, comforted by the central government’s fiscal prudence steps, a cut in interest rates on small savings rates and moderate inflation.

The repurchase rate, or the short-term lending rate for commercial banks on loans taken from the central bank (Reserve Bank of India), stands lowered to 6.5 percent from 6.75 percent. The reverse repurchase rate, or the short-term borrowing rate, has been adjusted upward to 6 percent from 5.75 percent.

The changes were carried out in the monetary policy for the current fiscal announced by Reserve Bank of India (RBI) Governor Raghuram Rajan here on Tuesday.

Among the two key instruments to directly regulate the money flow in the system, the cash reserve ratio (CRR), which is the quantum of liquid funds against deposits which commercial banks have to hold, has been left unchanged at 4 percent.

But the minimum daily maintenance of CRR has been cut to 90 percent from 95 percent.

Similarly, the statutory liquidity ratio, or the value of specified securities which commercial banks have to subscribe to, stands at 21.25 percent, effective from April 2.

The central bank had last cut its short-term lending rate in September by 50 basis points to 6.75 percent. Cumulatively, 2015 saw the monetary authority cut the repo rate by 1.25 percent.

“Inflation has evolved along the projected trajectory and the target set for January 2016 was met with a marginal undershoot,” Rajan said in his policy statement, adding that retail inflation was expected to decelerate modestly and remain around 5 percent in this fiscal.

“After two consecutive years of deficient monsoon, a normal monsoon would work as a favourable supply shock, strengthening rural demand and augmenting the supply of farm products that also influence inflation,” he said.

“On the other hand, the fading impact of lower input costs on value addition in manufacturing, persisting corporate sector stress and risk aversion in the banking system, and the weaker global growth and trade outlook could impart a downside to growth outcomes going forward,” he said.

He said the growth projection for 2016-17 was being retained at 7.6 percent.

The RBI governor declared that the stance of monetary policy will remain accommodative.

“The Reserve Bank will continue to watch macroeconomic and financial developments in the months ahead with a view to responding with further policy action as space opens up,” he said, adding it was more important at this juncture to ensure that all the rate cuts made since last year transmit to lending rates.

“The reduction in small savings rates announced in March 2016, the substantial refinements in the liquidity management framework announced in this policy review and the introduction of the marginal cost of funds based lending rate (MCLR) should improve transmission and magnify the effects of the current policy rate cut,” Rajan said.

Declaring that the Reserve Bank’s first objective of meeting short term liquidity needs has been accomplished through provision of liquidity by its regular facilities, the governor said the RBI plans to meet its other objective “to supply durable liquidity in the economy so as to facilitate growth while ensuring that the monetary policy stance is supported” through a new mechanism.

The RBI aims to supply durable liquidity “by modulating net foreign assets (NFA) and net domestic assets (NDA) growth over the course of the year, broadly consistent with the demand for liquid assets to meet transaction needs of the economy,” Rajan said.

“This will ensure adequate availability of durable liquidity, regardless of short term seasonal and frictional fluctuations,” he added.

The Indian industry welcomed Rajan’s latest easing in monetary policy.

The Confederation of Indian Industry (CII) said the 25 bps cut signals that the central bank was continuing to maintain an accommodative stance.

“Besides, for the first time, the RBI has narrowed the policy rate corridor by increasing the reverse repo rate by 25 bps. This along with measures to improve liquidity in the system would enable better monetary policy transmission and improve the availability and cost of credit to industry,” CII director general Chandrajit Banerjee said in a statement here.

“The move would stimulate demand, augment buying of consumer durables’ vis-a-vis reduced costs of credit, boost investments and growth of manufacturing sector,” said PHD Chamber president Mahesh Gupta.

Bandhan Bank to review rates, eyes 30 percent growth 

Kolkata, April 5 (IANS) The seven-month-old Bandhan Bank already commands a business of Rs.27,000 crore already and is targeting a 30 percent growth this fiscal year, a top official of the bank has said.

“At present, our total business including liability and assets stands at Rs.27,000 crore. We are looking at a 30 percent growth by this fiscal-end,” bank’s managing director and chief executive Chandra Shekhar Ghosh told IANS in an interview.

Having started banking operation in August last year, the focus has been on liabilities side. It has garnered over Rs.11,000 crore in deposits so far. Of this, around 21 percent comprises low cost savings and current account deposits.

Most of the term deposits are of one to three year tenure.

“We also looking at 30 percent growth of deposits by end of next March,” said Ghosh, who rose to the present position after working in his father’s small sweet shop in Agartala, before starting the micro-finance company in 2000.

He said the bank had got good responses so far from the depositors and almost 33 percent of the funds had come from retail depositors.

“Our focus will remain on the doorstep services, as also on building relations with depositors and customers, as a strategy to garner more deposits and increase business volume,” the bank’s founder said how the targets will be pursued.

The bank, with a capital base of Rs.3,200 crore and a healthy capital adequacy ratio of nearly 40 percent, has extended its branch network to 656 across 27 states. It plans to further increase it to around 750 by March end, 2017, he said.

On lending, the bank’s total advances stood at Rs.15,000 crore. New lending channels like home loans, car and two wheeler loans, small and medium business loans have also been opened.

“In terms of lending to new channels, we plan to focus and operate in a segment where borrowers normally do not get funding from other banks. Since there is more risk involved in this segment, we are taking more time in scaling up our lending programme in new channels,” Ghosh said.

At the beginning of the banking operation, the Kolkata-based private lender had Rs.8,500 crore of high-cost loans on its book, borrowed from other banks for microfinance operations. “We’ve repaid Rs.5,000 crore and will repay rest of the high-cost loans within next one year.”

The Reserve Bank of India (RBI) had given a special permission to the bank to carry its high-cost loans on its book. Before becoming a bank, as microfinance institution, Bandhan used to borrow from banks at an average 12-14 percent rates.

Since the West Bengal-headquartered lender is able to access public deposits, the cost of funds seems to have come down. This, in turn, is likely to translate into its lending rates. Bandhan Bank’s base rate is now at 12 percent, which is relatively higher than other banks.

“We will likely take a decision in this month (April) on our base rate, to see whether we can reduce it or not,” he said. The central bank’s monetary policy for this fiscal, in which the short-term lending rate has been cut, should help Bandhan in this regard.

“The base rate of a bank depends on the operating cost and cost of procuring funds. Our operating cost as a new bank is relatively higher than other banks. The risk premium in segments we operate in is also high. All of that reflects in our base rate,” Ghosh said.

“But we will definitely review our base rate.”

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