RBI monetary policy review: States may need to get their loans rated

RBI monetary policy review: States may need to get their loans rated

If the state development loans (SDL) are rated, the margin requirement would be set at 1 per cent lower than other SDLs for the same maturity buckets

In its June monetary policy, the Reserve Bank of India (RBI) reduced the margin requirement for government securities (Gsecs) and state development loans (SDL) mortgaged by banks to access liquidity from the central bank. The central bank said the margin requirement for government bonds would be in the range of 0.5 per cent to 4 per cent, depending on residual maturity. For SDLs, the margin requirement would be 2.5 per cent to 6 per cent.

The rule was to have a margin requirement of 4 per cent for Gsecs and 6 per cent for SDLs. Furthermore, if the SDL is rated, the margin requirement would be set at 1 per cent lower than other SDLs for the same maturity buckets.The segmentation would help differentiate the market risk across securities, the RBI said. The RBI had earlier said it planned to let the SDLs be valued by finances of a state government. But now, the central bank said the relaxations in margin requirement would incentivise the state governments to get a public rating for SDLs.

In a bid to make the SDLs more market-oriented, the RBI said they should be valued at the price at which they have been traded in the market.In case of non-traded state government securities, the valuation will be based on the state-specific weighted average spread over the yield of the central government securities of equivalent maturity, as observed at primary auctions, the RBI said. Besides, state governments can now have special drawing facility at repo rate minus 200 basis points, against repo rate minus 100 basis points earlier. The states maintain two funds with the RBI to repay their obligations at the time of maturity of their bonds. The rate cut will incentivise states to use the funds, even more, RBI said.

The central bank also asked banks to spread their first quarter valuation losses in the bond portfolio over four years. It had allowed doing so in the past two quarters too, but most banks had decided to take a hit in the quarter itself. In an important move, the central bank allowed more participants to short-sell Gsecs. Currently, only banks, primary dealers and certain well-managed Urban Cooperative Banks (UCBs) are permitted to undertake the short sale of transactions. Besides, there are various limits on shorting. “With an objective to add depth to the Gsecs and repo markets, there is a proposal to liberalise the eligible short sale participants’ base as well as relax the entity-wise and security category-wise limits for short selling in Gsecs,” the RBI said.

The central bank also allowed primary dealers limited access to foreign exchange related transactions in order to help their foreign portfolio investor clients. Moreover, the central bank said it will enforce a regulation that will help curtail abusive market practices. Currently, foreign exchange and fixed income investors abide by the code of conducts formulated by their own associations. The central bank wants to introduce regulations, “in line with the best global practices to prevent abuse in the markets regulated by the RBI.”

Margin Requirement

The central bank said the margin requirement for government bonds would be in the range of 0.5% to 4%, depending on residual maturity
For SDLs, the margin requirement would be 2.5-6%
The rule was to have a margin requirement of 4 % for G-secs and 6% for SDLs
If the SDL is rated, the margin requirement would be set at 1 per cent lower than other SDLs for the same maturity buckets
The segmentations would help differentiate the market risk across securities, the RBI said

The Business Standard, New Delhi, 07th June 2018

RBI deputy governor cautions fintech platform lenders on privacy concerns during loan recovery

India's digital lending infrastructure has made the loan sanctioning system online. Yet, loan recovery still needs a “feet on the street” approach, Swaminathan J, deputy governor of the Reserve Bank of India, said at a media event on Tuesday, September 2, according to news agency ANI.According to the ANI report, the deputy governor flagged that fintech operators in the digital lending segment are giving out loans to customers with poor credit profiles and later using aggressive recovery tactics.“While loan sanctioning and disbursement have become increasingly digital, effective collection and recovery still require a 'feet on the street' and empathetic approach. Many fintech platforms operate on a business model that involves extending small-value loans to customers often with poor credit profiles,” Swaminathan J said. Fintech platforms' business models The central bank deputy governor highlighted that many fintech platforms' business models involve providing sm

Credit card spending growth declines on RBI gaze, stress build-up

Credit card spends have further slowed down to 16.6 per cent in the current financial year (FY25), following the Reserve Bank of India’s tightening of unsecured lending norms and rising delinquencies, and increased stress in the portfolio.Typically, during the festival season (September–December), credit card spends peak as several credit card-issuing banks offer discounts and cashbacks on e-commerce and other platforms. This is a reversal of trend in the past three financial years stretching to FY21 due to RBI’s restrictions.In the previous financial year (FY24), credit card spends rose by 27.8 per cent, but were low compared to FY23 which surged by 47.5 per cent. In FY22, the spending increased 54.1 per cent, according to data compiled by Macquarie Research.ICICI Bank recorded 4.4 per cent gross credit losses in its FY24 credit card portfolio as against 3.2 per cent year-on-year. SBI Cards’ credit losses in the segment stood at 7.4 per cent in FY24 and 6.2 per cent in FY23, the rep

India can't rely on wealthy to drive growth: Ex-RBI Dy Guv Viral Acharya

India can’t rely on wealthy individuals to drive growth and expect the overall economy to improve, Viral Acharya, former deputy governor of the Reserve Bank of India (RBI) said on Monday.Acharya, who is the C V Starr Professor of Economics in the Department of Finance at New York University’s Stern School of Business (NYU-Stern), said after the Covid-19 pandemic, rural consumption and investments have weakened.We can’t be pumping our growth through the rich and expect that the economy as a whole will do better,” he said while speaking at an event organised by Elara Capital here.f there has to be a trickle-down, it should have actually happened by now,” Acharya said, adding that when the rich keep getting wealthier and wealthier, they have a savings problem. “The bank account keeps getting bigger, hence they look for financial assets to invest in. India is closed, so our money can't go outside India that easily. So, it has to chase the limited financial assets in the country and

CA Online

Search This Blog