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Showing posts from August 30, 2018

RBI Panel to Study Feasibility of Digital Currency

This is the first time that the central bank is discussing its possible use in India. RBI has constituted an inter-departmental group to explore the feasibility of introducing a rupee-backed digital currency to battle rising costs of managing paper currency. This is RBI’s first take on the possible use of digital currency. “In India, an inter-departmental group has been constituted by RBI to study and provide guidance on the desirability and feasibility to introduce a central bank digital currency,” the RBI report stated. “(Globally), the rising costs of managing fiat paper/metallic money, have led central banks …to explore the option of introducing fiat digital currencies”. For FY18, total cost of printing paper notes in India was Rs 636 crore, according to RTI response to India Today. It cited rapid changes in the payments industry and emergence of private digital tokens as the possible factors. Digital currency, backed by an asset such as gold or fiat is known as stable coin –– whos…

RBI may Soon Do Away with MCLR

The Reserve Bank of India (RBI) has said that it would review guidelines on the marginal cost of funds based lending rate (MCLR), potentially preparing to do away with the system for lending rate calculation less than three years after it was introduced. In its 2017-18 annual report, RBI said it would review the MCLR guidelines as well subsidiarisation of foreign banks “for the purpose of fostering competition and re-orienting the banking structure in India.” It did not give more details. Bankers said a review was imminent because the MCLR system had not reflected the changes in rates. “World over, the bank rates have moved to an external benchmark which leads to uniform pricing. Currently banks in India calculate based on their internal benchmark which can be disputed and leads to a difference in rates between banks. This is likely to be changed,” said PK Gupta, managing director at SBI. The new MCLR regime was implemented in the fiscal year starting April 2016 and is closely linked to…

Report blames Reserve Bank of India for bad loans

The committee has criticised RBI’s revised definition for recognising NPAs that saw a spike in the bad loans on the books of banks and said this could hit economic growth. A committee of lawmakers thinks the Reserve Bank of India’s policies have accentuated the problem of non-performing assets of state-owned banks, and reduced amount at their disposal to lend; that banks do not have what it takes to fund long-gestation projects; and that it is important to remove the environment of fear in which bankers operate today, worrying that even a legitimate loan approval could engender an investigation. According to a senior lawmaker who spoke on condition of anonymity, the committee is likely to recommend in its report that India’s central bank relax some of these rules, thereby increasing the amount at the disposal of some state-owned banks to lend by around Rs5 lakh crore, and earning them additional interest income of around Rs45,000 crore.  Specifically, the committee has criticised RBI’s…