RBI Appoints R Gandhi On The Board Of Private Lender Yes Bank Ltd.

The Reserve Bank of India appointed R Gandhi on the board of private lender Yes Bank Ltd.

Gandhi was the former deputy governor of the central bank. This comes as a rare decision usually taken when a lender needs close regulatory supervision.

The RBI is empowered under the Banking Regulations Act to appoint one or more additional directors on a private lender’s board in the interest of the bank or its depositors. Section 36AB says that such a step may be taken if the RBI believes that it is necessary to do so “in the interest of banking policy or in the public interest or in the interests of the banking company or its depositors…”

The regulator last appointed E Madhavan on Dhanlaxmi Bank Ltd.s board in May 2017. The central bank announced his exit from the board in October 2018, five months before his term ended. The Lakshmi Vilas Bank Ltd. too, has had an RBI-appointed director on the board.

Yes Bank has seen management churn with the RBI asking promoter Rana Kapoor to step down as managing director and chief executive officer by Jan. 31. It was widely believed that divergence in bad loan reporting for two consecutive years and a weak compliance culture at the bank were reasons behind RBI’s decision not to extend Kapoor’s term. Kapoor, while no longer an executive at the bank, remains one of the promoters of the bank. He, together with the family of late co-founder Ashok Kapur, have rights to nominate three members to the Yes Bank board.

Ravneet Gill, former India chief of Deutsche Bank, took over as Yes Bank’s CEO on March 1.

Weeks after Gill took charge, Yes Bank reported its first-ever quarterly loss. The lender reported a net loss of ₹1,506 crore for the January-March period because of higher provisions against dodgy loans. Its gross non-performing asset ratio rose to 3.22 percent in March from 2.11 percent in December 2018.

Gill also announced a watchlist of over Rs 10,000 crore, comprising low-rated loans at the risk turning into NPAs. This, analysts said, could be a potential pain point for the bank. Many of them downgraded the stock following the fourth-quarter results. Last week, it was reported that the bank’s exposure to the Anil Ambani group is close to 50 percent of its common equity tier-1 capital.

The bank is also running low on capital and needs to raise funds imminently. Low levels of capital adequacy have prompted rating agencies to downgrade the lender.

RBI Carries Out Second Investment Rate Cut Within Two Months Span

The state- owned Reserve Bank of India (RBI) carried out a second consecutive interest rate cut on Thursday within a span of two months, meanwhile maintaining a neutral monetary policy stance. This reflects the RBI’s concern about retarded economic growth in India and abroad. The central bank cut its benchmark repo rate by 25 basis points (bps) to 6% on Thursday. One basis point is one-hundredth of a percentage point.

The central bank’s first bimonthly policy statement for 2019-20 stated unambiguously, “The need is to strengthen domestic growth impulses by spurring private investment, which has remained sluggish.”

Coupled with a 25 bps rate cut in February, and its decisive action on liquidity infusion into the system recently through a combination of instruments, RBI is clearly looking to use monetary tools to stimulate economic growth. In addition, a benign inflationary environment has helped the central bank edge into an expansionary monetary space.

The monetary policy committee (MPC) members voted 4-2 in favour of the RBI rate cut and 5-1 in favour of maintaining the neutral stance of monetary policy.

RBI’s concerns about the slowing Indian economy are echoed in its revised macroeconomic projections. The central bank has revised its retail inflation projections downwards from its February estimates: 2.4% for Q4 of 2018-19 (against 2.8% in February) and 2.9-3% for the first six months of 2019-20 (3.2-3.4% earlier).

GDP growth projections have also seen similar downward revisions—7.2% for 2019-20 (against 7.4% estimated in February), and, 6.8-7.1% in the first half of the current year, against the estimated 7.2-7.4% just two months ago.

Concerns, meanwhile, remain on whether bank lending rates will eventually reflect the 50 bps rate cut over the past two months. Addressing reporters, RBI governor Shaktikanta Das said, “I had earlier held a meeting with banks and some of them have marginally cut the MCLR (marginal cost of funds-based lending rate), but more needs to be done… We will come up with guidelines that will ensure effective transmission of rates.”

Apart from repo rate cuts, RBI has been increasing systemic liquidity through a combination of tools, including buying government securities from the market through its open market operations (OMO) and conducting three- year dollar- rupee currency swaps. “We will use all instruments, depending on the requirement and other relevant factors… We are particular that effective transmission of rates takes place. It is a work in progress,” Das said.

As part of the regulatory framework, RBI has also eased its liquidity coverage ratio norms that is expected to release more liquidity and help banks boost their lending activity.

There is now a clear shift in RBI’s actions—from inflation targeting to growth stimulation. The Indian economy slowdown has twin facets: lethargic consumption demand and slothful private investment demand. 

And while the central bank’s projections show a downward trend in consumer inflation, accompanied by slowing economic growth, these could easily be upset by the vagaries of the monsoon. RBI’s policy document does acknowledge the likelihood of an El Nino affecting crop output or a hardening of vegetable prices during the summer months. In addition, global oil prices continue to be the joker in the pack, with trade tensions or demand conditions determining its future trajectory.

RBI remained rather non-committal about two other factors that could affect the path of consumer inflation in the near future: a pre-election expansionary fiscal balance sheet and the impact of RBI’s own liquidity operations on money supply and prices. When asked, Das responded laconically: “The fiscal situation requires careful monitoring.”

While the RBI governor indicated that the central bank would soon be issuing a new circular to replace its 12 February circular that was recently quashed by the Supreme Court, he refused to comment on its contents. The 12 February circular had sought to introduce certainty and process in the bad loan resolution process.

RBI Cuts Repo Rate By 25 Basis Points , Maintains Policy Stance As ‘Neutral’

The Reserve Bank of India (RBI) on thursday decided to cut repo rate by 25 basis poibts (bos) marking its first bi-monthly monetary policy meet of fiscal year 2019- 20. The RBI has maintained the policy stance at “neutral”. 

The RBI’s six-member rate setting panel headed by RBI governor Shaktikanta Das on Tuesday started its 3-day monetary policy meet amid expectations of a cut rate to boost economic activities. This is also the first back-to-back rate cut since the Monetary Policy Comittee (MPC) was formed in late 2016. 

Das has already held meetings with stakeholders including industry bodies, depositors association, MSME representatives and bankers. Since taking over at the central bank in December last year, the RBI governor has taken a series of steps to help support economic growth and spur lending.

After announcing the rate cut, the RBI governor, in a media briefing, said that export growth remained weak in January and February this year and imports, specially non-oil gold imports, declined.

With inflation well below the RBI’s mandate of 4 per cent and a push towards the economic activities amid fears of global economic slowdown supported the RBI’s move. 

The central bank had reduced the repo rate by 25 basis points in February, after a gap of 18 months. The interest rate cut would provide relief to borrowers in the election season. 

Repo rate is the rate at which the central bank lends short-term money to the commercial banks. And, reverse repo rate is at which the RBI borrows money from the commercial banks. The reverse repo rate has also been reduced to 5.75 per cent from 6 per cent earlier. 

GDP (gross domestic product) growth for 2019-20 is projected at 7.2 per cent – in the range of 6.8-7.1 per cent in H1:2019-20 and 7.3-7.4 per cent in H2 – with risks evenly balanced.

“The decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of (+/-) 2 per cent, while supporting growth,” the RBI said in a statement. 

Banks take cue from RBI’s monetary policy stance in hiking or cutting lending rates. For instance, if the Reserve Bank lowers repo rate, banks are expected to pass on the benefit to retail customers. 

With back-to-back rate cuts, home, auto or personal loan EMIs (equated monthly inslallments) are likely to go down. 

The RBI’s decision comes a week before the general election kicks off on April 11, in which Prime Minister Narendra Modi will seek a second term in office. 

The next meeting of the MPC is scheduled for June 3-6.

RBI Cuts Repo Rate By 25 Basis Points , Maintains Policy Stance As ‘Neutral’

The Reserve Bank of India (RBI) on Thursday decided to cut repo rate by 25 basis poibts (bos) marking its first bi-monthly monetary policy meet of fiscal year 2019- 20. The RBI has maintained the policy stance at “neutral”. 

The RBI’s six-member rate setting panel headed by RBI governor Shaktikanta Das on Tuesday started its 3-day monetary policy meet amid expectations of a cut rate to boost economic activities. This is also the first back-to-back rate cut since the Monetary Policy Comittee (MPC) was formed in late 2016. 

Das has already held meetings with stakeholders including industry bodies, depositors association, MSME representatives and bankers. Since taking over at the central bank in December last year, the RBI governor has taken a series of steps to help support economic growth and spur lending.

After announcing the rate cut, the RBI governor, in a media briefing, said that export growth remained weak in January and February this year and imports, specially non-oil gold imports, declined.

With inflation well below the RBI’s mandate of 4 per cent and a push towards the economic activities amid fears of global economic slowdown supported the RBI’s move. 

The central bank had reduced the repo rate by 25 basis points in February, after a gap of 18 months. The interest rate cut would provide relief to borrowers in the election season. 

Repo rate is the rate at which the central bank lends short-term money to the commercial banks. And, reverse repo rate is at which the RBI borrows money from the commercial banks. The reverse repo rate has also been reduced to 5.75 per cent from 6 per cent earlier. 

GDP (gross domestic product) growth for 2019-20 is projected at 7.2 per cent – in the range of 6.8-7.1 per cent in H1:2019-20 and 7.3-7.4 per cent in H2 – with risks evenly balanced.

“The decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of (+/-) 2 per cent, while supporting growth,” the RBI said in a statement. 

Banks take cue from RBI’s monetary policy stance in hiking or cutting lending rates. For instance, if the Reserve Bank lowers repo rate, banks are expected to pass on the benefit to retail customers. 

With back-to-back rate cuts, home, auto or personal loan EMIs (equated monthly inslallments) are likely to go down. 

The RBI’s decision comes a week before the general election kicks off on April 11, in which Prime Minister Narendra Modi will seek a second term in office. 

The next meeting of the MPC is scheduled for June 3-6.

RBI Set To Lift Ban On ‘Exotic Currency Derivatives’

After a long time, the Reserve Bank of India is ready to lift the ban on ‘exotic currency derivatives’, the double-edged, fancy products that had left a mark of destruction in 2007- 08 in between allegations of mis-selling and court battles when bets by corporates backfired as the euro, Yen and Swiss franc surged.

Over the past month, senior RBI officials have held multiple meetings with bankers to discuss ways to allow these products, albeit with certain safeguards.

“There is mixed reaction among bankers. Some are excited by the possibility of extra margins from sale of exotic instruments while others who took the hit and were dragged to court are apprehensive… particularly, the compliance guys. But everyone is surprised by RBI’s plan to open up the market,” said a senior banker who attended one of the meetings.

Centre Refuses To Share Details Of RBI Governor Shaktikanta Das’ Appointment

The Centre has refused to disclose details concerning the appointment of RBI Governor Shaktikanta Das stating a clause in the transparency law which bars disclosure of information. This included “records of deliberations of the council of ministers, secretaries and other officers“.

Replying to an RTI query, it declined to share the details, including names of short-listed candidates and file notings related to the appointment.

Das was on December 11, 2018 named as the RBI Governor by the Appointments Committee of the Cabinet headed by Prime Minister Narendra Modi for three years.

The appointment came after Urjit Patel abruptly resigned amid a face-off with the government over issues related to governance and autonomy of the central bank.

The RTI application was filed by this correspondent with the Department of Financial Services (DFS) seeking details like copy of any advertisement or vacancy circular issued by the government on appointment of RBI Governor, names of all applicants who had applied for the post and those short-listed for the top post.

The DFS was also asked to provide details on composition of search committee to short-list candidates and copy of minutes of meetings held on deciding the RBI Governor.

In its reply, the DFS said the selection of Governor, RBI is done by the Appointments Committee of the Cabinet on the basis of recommendation made by the Financial Sector Regulatory Appointments Search Committee (FSRASC).

The committee is headed by cabinet secretary as its chairperson and has additional principal secretary to Prime Minister and secretary of the department concerned besides three outside experts as its members, the DFS said, without giving the names of the experts.

It had then forwarded the application to the cabinet secretariat.

“In this regard, it is informed that the requisite information about appointment of Shaktikanta Das as Governor, Reserve Bank of India, being Appointments Committee of the Cabinet (ACC) related file notings/documents/records, is exempted from disclosure under Section 8 (1) (i) of the Right to Information Act 205,” the cabinet secretariat said in its reply to the RTI application.

The section bars disclosure of “cabinet papers, including records of deliberations of the council of ministers, secretaries and other officers“.

The section, however, says that the decisions of council of ministers, the reasons thereof, and the material on the basis of which the decisions were taken shall be made public after the decision has been taken, and the matter is complete, or over.

Das, a 1980-batch IAS officer of Tamil Nadu cadre, retired as Economic Affairs Secretary in May 2017 and was since appointed India’s Sherpa to the G-20 and a member of the Finance Commission.

Urjit Patel, who initially appeared to have toed the government line on issues like demonetisation, clashed with the Finance Ministry last year over issues of liquidity, reserves of the central bank and lending norms.

The face-off had led to the government invoking a never-used-before provision of the RBI Act to bring the Governor to the negotiating table on these issues.

After Das’ appointment was announced, Indian-American economist Abhijit Banerjee flayed the government for appointing the retired bureaucrat as the RBI Governor. He also warned that the decision leaves a lot of “frightening” questions about governance issues at key public institutions.

Banerjee, Professor of Economics at the Massachusetts Institute of Technology (MIT), had made a strong pitch for strengthening the credibility of all key institutions like the RBI.

On Patel’s sudden resignation, he had said, “We should all worry if this is a sign of institutional stress.”

Addressing a function a day after Das’ appointment, former chief economic advisor Arvind Subramanian said the central bank’s autonomy was “sacred” which should not be compromised.

IDBI Bank Categorised As Private, AIBEA Asks RBI To Reconsider Its Decision

The All India Bank Employees Association (AIBEA) has asked the Reserve Bank of India (RBI) to relook upon its decision to categorise IDBI Bank as a private sector bank.

In a letter to the RBI Governor Shaktikanta Das, the AIBEA General Secretary C H Venkatachalam has demanded that IDBI Bank’s categorisation be reverted as “Other Public Sector Bank”, which was the situation earlier. Although Government’s stake has come down below 51 per cent, AIBEA has highlighted that LIC, which is the main shareholder now is 100 per cent Government owned and hence the re-categorisation was unwarranted and motivated against public interest.

“By recategorising the bank as a private bank, it is obvious that the RBI wants to shield the skeletons of the bank from public glare under RTI, CVC etc, the AIBEA has said. “From AIBEA we would like to convey our strong opposition and protest against the reorganisation and reclassification of the bank as private bank”, Venkatachalam said.

RBI Shows Concern Over Role Of ‘Rating Advisers’

Reserve Bank of India (RBI) has pointed out the conflict of interest in the functioning of credit rating agencies. It is concerned about the role of the club of ‘rating advisers’, which are unregulated entities acting as brokers between companies and rating agencies.

In a recent meeting, RBI governor Shaktikanta Das categorically questioned the dual practice of rating agencies to rate a bond as well as decide its valuation which is used by mutual funds (MFs) to calculate the net asset value, or NAV, of a MF scheme.

Das said the two businesses pose a conflict as he asked senior agency officials present in the meeting about the share of ‘non-rating activities’ in earnings of rating companies. It is perceived that the motivation to downgrade a security would be lower for an agency which carries out both businesses.

“The valuation of a bond is also function of liquidity in the market. If a price or value of a bond goes down, it could impact the rating. But the agency doing both may be reluctant to downgrade a rating or keep it under watch because it could make its rating transition and default statistics look bad,” a banker familiar with the discussions told ET.

“While bond valuation is not a big business for rating agencies, it gives them a certain clout and builds their relationship with funds. More so, because rating MF schemes is another business for the rating agencies,” said the person.

Das clearly spelt out that credit rating is a different kind of business in which revenue should not be the primary objective.

“RBI officials made a note on the activities of rating advisers but did not express their views on the subject. These advisers, which have come up in the past five to six years, are small firms, often floated by former employees of rating agencies. They receive commission from issuing companies which are their clients as well as from rating companies. Since they approach the agencies with the authorisation from client companies, agencies cannot shut them out. But there are suspicions that they misrepresent data and indulge in other sharp practices,” said an industry official.

Such adviser-intermediaries are mostly hired by mid-sized corporates (and occasionally by large ones) which shop around for the best rating.

Former RBI Governor Says Softer Inflation In India Gives Way To Support Indian Economy

The former governor of Reserve Bank of India Bimal Jain said on Tuesday that softer inflation in the country puts the central bank in a state of supporting economic growth. 

“We are in a very good situation so far as inflation is concerned,” said Jalan who lead the RBI between 1997 and 2003. 

“There is some uncertainty about the rate of growth. That needs to be strengthened.”

New RBI Governor Shaktikanta Das surprised economists by easing monetary policy in February, and data since then suggests Asia’s third-largest economy could do with some more stimulus. Economic growth slowed to 6.6 percent in the three months through December as political uncertainity ahead of a general election compounded challenges posed by weak domestic demand and a global slowdown.

At the same time inflation remains benign and well below the RBI’s medium-term target of 4 percent, stoking expectations for back-to-back rate cuts at the April 4 policy meeting. Jalan declined to comment specifically on what the RBI should do at that meeting or on other policy settings.

Jalan said the RBI should decide how much it can do to facilitate credit flow and investment in the economy, given global risks and elections at home.

The former governor currently heads a central bank-appointed panel, which is studying how much of the RBI’s surplus capital can be transferred to the government.

He declined to discuss the panel’s deliberations, saying “our report will be sent to the RBI next month and they will decide what needs to be done.”

Dividend Pressure

The RBI pays a dividend to the government every year from the profit it earns from investments, the printing of banknotes and other operations, while retaining a small portion as capital reserves. The government estimates the central bank holds at least 3.6 trillion rupees ($52 billion) more capital than it needs, with finance ministry officials suggesting last year that the money can be used to bolster weak state banks.

The government’s pressure was opposed by the RBI under its previous Governor Urjit Patel, who quit abruptly in December following a public spat with the state over the central bank’s autonomy. Das, a former bureaucrat, is seen as an ally of Prime Minister Narendra Modi.

“The use should be for the government to decide,” Jalan said, when asked if the transfer of the funds should be conditional.