The cost of funding remains high for Indian banks, as deposits have lagged behind credit growth which curtails their ability to lower lending rates, says Nomura Global Economics Research
Despite the Reserve Bank of India (RBI) cutting the repo rate by 25 basis points (bps), lending rates in the country are unlikely to fall due to high cost of funding, says Nomura Research.
“RBI noted that the space for further easing was ‘quite limited’. At a time when transmission of rate cuts is also partially clogged, this suggests that lending rates are unlikely to fall much. The transmission of rate cuts remains challenging. Excluding yesterday’s 25bps (basis points) cut, the 75bp repo rate cut has so far only translated into a 30bp reduction in lending rates and a 25bp decline in deposit rates,” the research report said.
Nomura said, a combination of factors such as credit growth outpacing deposit growth and elevated government cash balances has tightened liquidity, which has forced banks to chase deposits, raising their funding costs and affecting their ability to cut lending rates.
“RBI has historically used stealth tightening (easing) of liquidity conditions to change the operative rate to the repo (reverse repo). Transmission in the current regime (where the repo will remain the operative rate) remains untested,” it said.
Nomura concludes by maintaining its below-consensus GDP growth forecast of 5.6% y-o-y (year-on-year) in FY14 from 4.9% in FY13.
The five assaulted Assistant Police Inspector (Traffic) Sachin Suryawanshi on the first floor of the legislature building on Tuesday, who allegedly stopped the vehicle of Thakur and fined him for over speeding on the Rajiv Gandhi Bandra-Worli Sea Link on Monday
The Maharashtra legislature on Wednesday suspended five of its MLAs, including one each from the BJP, Shiv Sena and MNS, for beating up a police officer within the legislature premises.
Parliamentary affairs minister Harshwardhan Patil announced the suspension of the five legislators from the house till the end of the year.
They five are independent legislators Kshitij Thakur and Pradeep Jaiswal, Shiv Sena’s Rajan Salvi, Maharashtra Navnirman Sena’s (MNS) Ram Kadam and Bharatiya Janata Party’s (BJP) Jaykumar Rawal.
The five assaulted Assistant Police Inspector (Traffic) Sachin Suryawanshi of the Worli police station on the first floor of the legislature building on Tuesday. Suryawanshi allegedly stopped the vehicle of Thakur and fined him for over speeding on the Rajiv Gandhi Bandra-Worli Sea Link on Monday.
Here is another surprise move from the RBI for stopping acceptance of post-dated cheques. PDCs are preferred by lenders as it is considered a “safe instrument” while banking public feels at ease with its usage
The Reserve Bank of India (RBI) while extending the deadline for issuing new chequebooks based on the cheque truncation system (CTS) signalled the end of post-dated cheque (PDCs) era.
In a notification issued on 18th March, the central bank said the system of post-dated cheques and payment via equated monthly instalment (EMI), in either the old or the new format, would be banned from now wherever electronic debit facilities are available. “Lending banks shall make all efforts to convert existing PDCs in such locations into electronic clearance service (ECS) or regional ECS (RECS) for debit by obtaining fresh mandates from the borrowers,” the RBI said.
Lenders across the country are sitting on a pile of huge number of PDCs worth thousands of crore of rupees. Most are them are reluctant to call the borrower, take a mandate for ECS and return all the PDCs. This is not only a time-consuming process but also increases the workload on bank employees.
While on paper the idea looks good, there are several hurdles for implementing these changes. PDCs are the most favoured system by lenders across the country, as it is considered “fail-safe”, in case the borrower defaults. In case of default in repayment through PDC, the borrower can be tried under Section 138/142 of the Negotiable Instruments Act, 1881. Section 138 aims to promote better compliances in terms of honouring cheques and discharging liabilities by imposing a penalty for any default committed in this respect. It is a medium of speedy remedy provided for the protection of the holder/payee of the cheque, where the debtor seeks to discharge his obligation through cheque but does not intend to honour it.
Even the Supreme Court, in a recent judgement, has ruled that stop payment of PDCs issued by a person to discharge his debt or liability could amount to penal offence. A bench comprising Justice MB Shah and Justice Arun Kumar said, “A post-dated cheque will lose its credibility and acceptability if its payment can be stopped routinely.”
Another issue with the RBI's new directive is at present, there are 81 centres or locations that offers local ECS, while there are just nine centres, which offer RECS across the country. National ECS, on the other hand is operated at Mumbai and facilitates the coverage of all core-banking enabled branches located anywhere in the country.
Though our banking system is developing fast, the access to banking today is not available to one-third of our population and ramifications of a hasty decision to penalise usage of cheques will be too catastrophic for a nation like ours, which requires social up-liftment and inclusive banking before forcing technology on our people.
Earlier, while speaking at Chennai in December 2012, Dr KC Chakrabarty, deputy governor of the RBI had said, “Technology has the potential to act as a force multiplier in our financial inclusion efforts, provided it is implemented in a planned manner. There is, however, an increasing realization that mere reliance on technology-enabled non-face to face channels alone would not be sufficient to meet our goal of creating an inclusive financial system. There is a need for opening more brick-and-mortar outlets as delivery points, both as a control mechanism for business correspondents (BCs) and to gain the trust and acceptability of the masses.”
Before asking banks to stop accepting PDCs, the RBI needs to first educate the banking public about using ECS/RECS facility and incentives its usage, if needed.