The Reserve Bank of India’s bi-monthly policy meeting kept the sector in news this week. Despite the pause in interest rates, Governor Urjit Patel disclosing a denial of MPC meeting proposed by the Finance Ministry did raise a lot of murmur of a potential disagreement between the North Block, Delhi and Mint Street in Mumbai.
Here are the key highlights:
> Policy rate decision by Monetary Policy Committee
Along expected lines, the Reserve Bank of India (RBI) monetary policy committee (MPC) today kept the key policy rate unchanged at 6.25 percent for the fourth time in a row.
The key policy repo rate, which is the rate at which banks borrow short term funds from the RBI, now remains at 6.25 percent while the reverse repo stands at 6.00 percent.
The MPC sees inflation falling to 2%-3.5% near term
> Show of autonomy? MPC members decline to meet with Finance Ministry officials
The MPC members declined a meeting with the Finance Ministry just before the policy meet, RBI governoe Urjit Patel told reports at the press conference on Wednesday.
According to reports, Finance Ministry officials were scheduled to meet the MPC’s external members on June 1, while the meeting with the RBI members and its chief was slated for the following day. The ministry was to be represented by economic affairs secretary, chief economic adviser Arvind Subramanian and principal economic adviser Sanjeev Sanyal.
> The issue of farm loan waivers
RBI governor once again cautioned that the much-debated farm loan waivers could lead to fiscal slippages and result in inflation spillovers.
In the RBI’s bi-monthly policy meet, the governor also said that large loan waivers to farmers could also undo work done on fiscal rectitude side in the last 2-3 years.
This is not the first time that RBI governor spoke against the loan waiver issue. In the first bi-monthly meet in April, Patel had said that farm loan waivers undermine an honest credit culture and impacts credit discipline
> SBI cut interest rates on home loans over Rs 75 lakh
SBI cut interest rate on home loans above Rs 75 lakh by 10 basis points (bps) to 8.60 percent. For salaried women borrowers, the loans will be offered at 8.55 percent.
“The new rates will be effective from June 15… The home loan rates offered are lowest in the industry,” SBI said in a statement.
“Taking a cue from the recent RBI reduction in risk weightage on home loans, SBI is passing on the benefit to its customers by reducing its interest rates on home loan above Rs 75 lakh,” the statement added.
> Bankers remain conservative on overall lending rate cuts
While borrowers are unlikely to secure cheaper loans, interest rates will continue to stay low as banks will now have additional capital after the RBI yesterday eased deposit norms with the regulator.
During the second bi-monthly policy announcement, as a counter cyclical measure, the central bank relaxed the risk weight requirements and loan to value (LTV) ratios of individual home loans above Rs 30 lakh.
> Moving on from policy, SBI raised Rs 15,000 crore through a QIP, biggest in India
State Bank of India said on Friday it may not need to tap equity markets for at least another year as its capital ratios will strengthen in the wake of this week’s $2.3 billion share sale.
India’s biggest lender is also due to gain additional funds this financial year from a planned share sale in its life insurance arm and also from possible stake divestments it considers non-core, the head of the bank, Arundhati Bhattacharya, told a briefing.
As such, there is no need for SBI to seek funds from the government for now, she added.
> Additionally, SBI also cut its loan exposure to top 20 large borrowers by 22%
State Bank of India’s (SBI) exposure of loans to top 20 largest borrowers declined by 22 percent to Rs 1.82 lakh crore in FY17. This accounted for 11.19 percent of total loans.
In the previous year, this number stood at Rs 2.34 lakh crore, accounting for 15.5 percent of total loans, SBI said in its Annual Report for 2016-17.
Additionally, the total exposure to top four NPA (non-performing asset) accounts also dipped to Rs 21,901.5 crore in FY17 as compared to Rs 26,863.5 crore a year ago, the annual report showed.
> LIC stake in SBI rose to 10.4% and it paid Rs 5,700 cr to pick up 38% in QIP issue
Life Insurance Corporation (LIC) picked up 38 percent shares in this year’s largest equity issuance by country’s largest lender State Bank of India (SBI) on Thursday.
This increased LIC’s stake in the government-owned bank from 8.64 percent to 10.4 percent.
SBI closed the qualified institutional placement (QIP) on Thursday to raise Rs 15,000 crore. The issue had opened on June 5.