RBI slashes repo by 1% pave way for cheaper loans

Recently the Reserve Bank of India (RBI) has supported the banking system with Rs 145,000 crore funds as the banks were facing liquidity crunch. In order to provide more help to the banks RBI has slashed its key short-term lending rate (repo) by 100 basis points, this has opened road for cheaper home, consumer, corporate and personal loan rates.

This reduction in repo is the first since 2004, which will allow banks to immediately borrow short-term funds from the apex bank at a cheaper eight per cent as against nine per cent till now.

Finance Minister P Chidambaram while addressing the reporters in New Delhi said that this move "will enthuse investors to continue to take forward their investment proposals."

HDFC Bank's Deputy Treasurer, Ashish Parthasarathy said "It is a welcome step and clearly shows that the interest rate regime is now on a descent curve".

RBI keeps close watch on banks’ overseas transactions

The Reserve Bank of India (RBI) is keeping a close watch on all payments by Indian banks. According to sources which are closely related to the development say the central bank is doing close screening of the data of foreign and some of the private banks which acts as custodians for foreign institutional investors (FIIs). Indian banks, both public and private sector banks send funds to their foreign branches for everyday requirements in the inter-bank market and for client commitments.

According to RBI sources although banks report transactions fortnightly and monthly but it is keeping a close watch on a daily bases on the transactions. The objective behind the close screening is to check the flight of capital under the guise of repatriation of portfolio investments.

Most of the foreign investors whether banks, parents of foreign banks, private equity players or foreign funds all of them have done considerable investments in Indian entities through both foreign direct investment (FDI) and FII routes.

As per close sources last week RBI has showed concern about the flight of capital therefore came up with capital combination for both public and private banks.

Hence, RBI wants to keep a check on flight of capital which has come as direct investment, and some of have a lock-in period facility attached to it. Regarding the portfolio investment the main aim is to see if all remittances have an underlying or physical settlement. A source said, “One needs to check if such remittances comply with the Foreign Exchange Management Act”.

However till no untoward has come into notice, then also RBI is trying to ensure that the transactions are done in an orderly manner and all the norms are followed. This move of RBI has come at the time when the growing global dollar crisis has forced the financial institutions to depend on regulatory support.

Since January 2008, in Indian equity markets FIIs have been net sellers to the tune of $10.83 billion.

Such conditions of the market has increased in withdrawal of funds which has put pressure on the rupee and in turn has led to a substantial reduction in foreign exchange reserves, which is partly credited to the RBI’s intervention in the forex markets to ensure that the rupee does not depreciate too much. Since January, there has been drop in the rupee of nearly 23 per cent as against the US dollar. It closed at 48.47 against the dollar on Friday.

As per the latest RBI data India’s foreign exchange reserves have fell almost $10 billion during the week ended October 10 to $274 billion. Whereas the reserves have lowered by $35 billion at the end of March 2008, though there is still an increase of around $23 billion on a year-on-year basis.

RBI reports: Tamil Nadu credit-deposit ratio highest amongst other banks

As per RBI’s data available Tamil Nadu is leading in the credit-deposit (C-D) ratio at 111.8 per cent in the first quarter of the current fiscal followed by Maharashtra with 99.5 per cent.

C-D ratio means the proportion of loans generated by banks from the deposits received. As per the quarterly figures on deposit and credit released by the central bank, the national average of all scheduled commercial banks accounted at 74.5 per cent.

Whereas the ratio of State Bank of India (SBI) and its associates stands at 76.1 per cent, higher than the other scheduled commercial banks (73.9 per cent).

The C-D ratio of nationalized banks and regional rural banks accounts at 72.9 per cent and 59.5 per cent respectively. The ratio in case of foreign banks stood at 91.9 per cent.

As a group, nationalized banks C-D accounts for 48.6 per cent of the aggregate deposits, while SBI and its associate’s accounts to 22.6 per cent.

The share of other scheduled commercial banks, foreign banks and regional rural banks in aggregate deposits stood at 20.1 per cent, 5.8 per cent and 3 per cent respectively.

Whereas in the gross bank credit, nationalized banks hold the maximum share of 47.6 in the total bank credit, followed by SBI and its associates at 23.1 per cent and other scheduled commercial banks have 19.9 per cent.