Banking
  • Auction for Sale (Re-Issue) of Government Stock
    04 Aug, 2014

    Government of India have announced the Sale (re-issue) of (i)“ 8.12 percent Government Stock 2020” for a notified amount of Rs. 3,000 crore (nominal) through price based auction and (ii) “8.28 percent Government Stock 2027” for a notified amount of Rs. 7,000 crore (nominal) through price based auction. The auctions will be conducted using uniform price method. The auctions will be conducted by the Reserve Bank of India, Mumbai Office, Fort, Mumbai on September 06, 2013 (Friday).Up to 5% of the notified amount of the sale of the stocks will be allotted to eligible individuals and Institutions as per the Scheme for Non-Competitive Bidding Facility in the Auction of Government Securities. Both competitive and non-competitive bids for the auction should be submitted in electronic format on the Reserve Bank of India Core Banking Solution (E-Kuber) system on September 06, 2013. The non-competitive bids should be submitted between 10.30 a.m. and 11.30 a.m. and the competitive bids should be submitted between 10.30 a.m. and 12.00 noon. The result of the auctions will be announced on September 06, 2013 and payment by successful bidders will be on September 10, 2013 (Tuesday). The Stocks will be eligible for “When Issued” trading in accordance with the guidelines on ‘When Issued transactions in Central Government Securities’ issued by the Reserve Bank of India vide circular No. RBI/2006-07/178 dated November 16, 2006 as amended from time to time.

     

    Union Cabinet approved continuation of the interest subvention scheme to provide short-term crop loans to farmers.

    The Union Cabinet approved continuation of the interest subvention scheme to provide short-term crop loans to farmers in order to ensure the availability of crop loans at affordable rates to farmers for loans upto Rs. 3 lakh at the rate of 7 percent per annum.

     

    This scheme has already been extended to crop loans borrowed from private sector scheduled commercial banks in respect of loans given within the service area of the branch concerned. An additional subvention of 3 percent is being provided to those farmers who repay their loans on time. Thus, the effective rate of interest for such farmers will be 4 percent per annum. The estimated budgetary implication of this scheme for 2013-14 is Rs. 15,385 crore

     

    The Government will also provide interest subvention at 7 percent to small and marginal farmers having Kisan Credit Card loans against Negotiable Warehouse Receipts for post harvest, on the same rates as those available for crop loan, for another six months. The estimated additional budgetary implication of this feature would be Rs. 264 crore

     

    Banks have been consistently meeting the target set for agricultural credit flow in the past years. For the year 2013-14, the target for agricultural credit flow has been raised to Rs. 7 lakh crore from Rs. 5.75 lakh crore in the year 2012-13.

     

    RBI announces Interest rate hike

    The market perception of likely tapering of US Quantitative Easing has triggered outflows of portfolio investment, particularly from the debt segment. Consequently, the Rupee has depreciated markedly in the last six weeks. Countries with large current account deficits, such as India, have been particularly affected despite their relatively promising economic fundamentals. The exchange rate pressure also evidences that the demand for foreign currency has increased vis-a-vis that of the Rupee in part because of the improving domestic liquidity situation.

    Against this backdrop, and the need to restore stability to the foreign exchange market, the following measures are announced by RBI on 15th July,2013:

    • The Marginal Standing Facility (MSF) rate is recalibrated with immediate effect to be 300 basis points above the policy repo rate under the Liquidity Adjustment Facility (LAF). Consequently, the MSF rate will now be 10.25 per cent.

       

    • Accordingly, the Bank Rate also stands adjusted to 10.25 per cent with immediate effect

       

    • The overall allocation of funds under the LAF will be limited to 1.0 per cent of the Net Demand and Time Liabilities (NDTL) of the banking system, reckoned as Rs.75,000 crore for this purpose. The allocation to individual banks will be made in proportion to their bids, subject to the overall ceiling. This change in LAF will come into effect from July 17, 2013.

       

    • The Reserve Bank will conduct Open Market Sales of Government of India Securities of Rs.12,000 crore on July 18, 2013.

       

    RBI announces monetary policy, reduces repo rate by 25 bps, CRR unchanged at 4%

    In the Monetary Policy announced on 3rd May,2013, RBI reduced the Repo rate, the rate at which the RBI lends to banks, to 7.25%, from 7.5% earlier. All other rates such as the reverse repo, the rate which the RBI pays banks for depositing excess funds, the penal interest rate and the bank rate, fall by similar amount. The Cash Reserve Ratio, the proportion of deposits to be kept with RBI is left unchanged at 4%.

    The RBI forecast an economic growth of 5.7% for the fiscal, higher than the 5.1% expected in 2013. Inflation is expected at 5.5%, lower than 6.8% in 2012-13. It averaged at 7.3% in fiscal 2013.RBI expects economic activity to show only a modest improvement over last year, with a pick-up likely only in the second half of the year .With global growth unlikely to improve significantly from 2012, growth in services and exports may remain sluggish. Accordingly, the baseline GDP growth for 2013-14 is projected at 5.7%.The Wholesale Price Index fell to 5.96% in March 2013 from 7.69% in March last year and the Index of Industrial Production is at 0.6%, down from 4.3% in February 2012

     

    Debts of infrastructure Projects being implemented under PPP mode and having model Concession Agreements to be Treated as Secured Lending

    On 18th March 2013, Reserve Bank of India (RBI) has eased the norms for treating bank loans as secured finance by notifying that the debt due to the lenders in case of Public Private Partnership (PPP) projects may be considered as secured by the respective Banks to the extent assured by the Project Authority in terms of the Concession Agreement, subject to certain conditions. The conditions include that the user charges, toll or tariff payments, are kept in an escrow account where senior lenders have priority over withdrawals by the concessionaire and there is sufficient risk mitigation, such as pre-determined increase in user charges or increase in concession period, in case project revenues are lower than anticipated. In addition, lenders are required to have a right of substitution in case of concessionaire default and also to trigger termination in case of default in debt service. The lenders should also have a right to trigger termination in case of default in debt service and upon termination; the Project Authority has an obligation of compulsory buy-out and repayment of debt due in a pre-determined manner.

    This implies that the debts of infrastructure projects being implemented under PPP mode and having model concession agreements will now be treated as secured lending. The earlier notification of RBI dated 17th April 2009 provides that the rights, licenses, authorization, etc., charged to the banks as collateral in respect of projects (including infrastructure projects) should not be reckoned as tangible security.

    This move is aimed at boosting infrastructure financing, especially for the projects in roads and power sector as debt to such projects were currently not only costly but also considered risky and unsecured. Therefore, the new projects based on BOT basis will be immediate beneficiary as Banks will find these infrastructure projects more comfortable and attractive for financing.

     

    Banking Trends

    Broad money (M3) in the financial year 2012-13 (up to February 22, 2013) increased by 10.8 per cent as compared to 11.5 per cent during the corresponding period of the last year. The year-on-year growth, as on February 22, 2013 was 12.4 per cent as compared to 13.9 per cent in the previous year.

    Reserve money (M0) during the financial year 2012-13 (up to March 1, 2013) showed an increase of 3.9 per cent as compared to 4.6 per cent in the corresponding period of the previous year. The year-on-year variation revealed an increase of 2.9 per cent (up to March 1, 2013) compared to 11.6 per cent on the corresponding date of the previous year. An important source of reserve money, namely, net foreign exchange assets (NFA) of the RBI increased by 5.2 per cent (as on March 1, 2013) as compared to increase of 7.0 per cent in the same period last year. The y-o-y growth rate of NFA, showed an increase of 9.0 per cent as compared to an increase of 6.9 per cent on the corresponding date of the last year.

     

    Scheduled Commercial Banks (SCBs): business in India

    During the current financial year 2012-13 (up to February 22, 2013), Bank credit showed increase of 9.0 per cent, as compared to increase of 11.9 per cent as during the corresponding period last year. The y-o-y variation revealed an increase of 16.3 per cent as compared to 15.7 per cent during the same period in the previous year. Non-Food credit during this period increased by 11.1 per cent (up to up to February 22, 2013) as compared to increase of 11.6 per cent during the corresponding period last year. The y-o-y variation revealed an increase of 16.1 per cent as compared to 15.5 per cent during the same period in the previous year. The aggregate deposits with Scheduled Commercial Banks (SCBs) recorded an increase of 7.3 per cent (up to February 22, 2013) as compared to increase of 11.7 per cent during the corresponding period of last year. The y-o-y variation revealed an increase of 12.8 per cent as compared to 14.4 per cent in the previous year.

     

    Interest rates (per cent per annum)

    As on February 22, 2013, Bank Rate was 8.75 per cent as compared to 9.50 percent on the approximately corresponding date of last year. Call money rates (borrowing & lending) were 7.85 per cent as compared with 8.73 per cent on the approximately corresponding date of last year.

     

    Amendments to Regional Rural Banks (RRBs) Act, 1976