Liquidity tightening measures by the central bank will affect banks’ ability to use the repo window. These measures aimed at curbing forex speculation against the Indian rupee are unlikely to have a large negative effect on banks, says Nomura
Nomura Equity said it believes that the sudden move to tighten liquidity in the system, by the Reserve Bank of India (RBI), will only impact net interest margins (NIMs) by three to four basis points (bps), which is marginal. Nomura, in a report said, “In addition to more liquidity tightening for banks at the margin, a rough calculation suggests an average impact of approximately 3-4bps on NIMs due to the increase in minimum daily CRR balance to 99% from 70% earlier.”
The RBI in a panic move of sorts to curb speculation on the rupee and prevent banks from betting against the rupee, announced a series of drastic measures. The first measure is to its liquidity adjustment facility (LAF). The overall limit for access to LAF by each individual bank is set at 0.5% of its own net demand and time liabilities (NDTL) outstanding as on the last Friday of the second preceding fortnight.
The second drastic measure is adjustment and hiking the cash reserve ratio (CRR) requirements on a daily basis to a whopping 99%! According to Nomura, currently, banks are allowed to maintain their cash reserve ratio (CRR) prescribed by the RBI on an average daily basis during a reporting fortnight, with a minimum of 70% of the required CRR on a daily basis. Effective from the first day of the next reporting fortnight from 27 July 2013, banks will be required to maintain a minimum daily CRR balance of 99% of the requirement.”
In other words, banks will have less money in their reserves to make use of the repo window. Nomura feels that RBI is targeting the repo window to prevent sell off in domestic market. “Measures were aimed at curbing the use of the system liquidity to speculate against the INR at the aggregate sector level. Today's measures aim at taking the liquidity tightening one step further by forcing all banks to hold greater cash reserves (effectively) and also restrict their borrowing at the repo window,” said the Nomura report to clients.
Rather than targeting individuals, the RBI is targeting the corporate sector who make use of the repo window for their daily transactions and positions.
The apex court while directing two companies of Sahara group to inform about the date to refund investors' money also issued contempt notice on a petition filed by SEBI against the Subrato Roy-led companies
The Supreme Court on Wednesday issued a fresh contempt notice to Sahara India Real Estate Corp Ltd and Sahara Housing Investment Corp Ltd for not complying with its order directing the deposit of over Rs24,029 crore raised by issue of optionally fully convertible debentures.
The bench comprising judges KS Radhakrishnan and JS Khehar also asked the companies to give a definite date by which they can refund the money to its investors.
Market regulator Securities and Exchange Board of India (SEBI) had filed the petition against the two Sahara companies for not obeying the apex court's December order.
Last week, the SC hauled up the Securities Appellate Tribunal (SAT) for restraining SEBI from taking coercive action against the two Sahara group companies for not refunding Rs24,000 crore to investors.
Earlier on 15th March, SEBI had had filed a plea before the apex court, seeking clarificatory directions for implementing orders of the SC. In the five-point plea, SEBI had also asked for civil detention of Subrata Roy and three other Sahara directors and also wants them to deposit their passports with its whole-time member.
SEBI on 13th February passed two separate orders, together running into 160 pages, directing attachment of properties and freezing of accounts. It had said that in furtherance to a Supreme Court order directing refund of investors’ money collected by the two Sahara group companies, it ordered “attachment of all moveable and immoveable properties, bank accounts and demat accounts of these two companies and that of its promoters and directors Subrata Roy, Vandana Bhargava, Ashok Roy Choudhary and Ravi Shankar Dubey”.
The assets ordered to be attached included those related to the group’s Aamby Valley resort town near Pune, other real estate assets in Delhi, Mumbai and at other places across the country, shares, mutual funds and various other investments.
Passing the attachment orders, SEBI had said that the two companies had raised Rs6,380 crore and Rs19,400 crore, respectively from bondholders and “various illegalities” were committed in raising of these funds.