Money & Banking
Lending rates are unlikely to fall, says Nomura

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.

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Maharashtra legislature suspends 5 MLAs for beating up cop

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.

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COMMENTS

Shadi Katyal

4 years ago

This is India and democracy here means GOONDA RA and thus such VIP class feels above the LAW and thus this action.
Why has the parties not expelled such members ? They should be expelled from the legislature for 5 years and not allowed to run for any seat.
Police should show its power and put them in jail for few years if we wish the nation to know what Law and Order mean.
Shiv sens instead of creating some Law and Order has become a lawless party itself. Vigilantism should not be allowed

NSriramamurty

4 years ago

Pleasant to note that 5 MLAs are suspended till year end for thrashing ASI.Elected Represantatives like MLAs / MPs,say that they are supreme since elected and answeable to Voters and Consequently Buereocratives are Pressurised to work as told by them.IAS/IPS Offiicers are suffering Lot to work under Pressure, eventhough they feel it not to be Done.Cosequently they are getting Prosecuted,for Politicians Scams, since they did not show guts to work , what is best for people,for pressure from Politicians to work otherwise.Buereucrats sould learn to stand on their Princoples.

RBI asks banks not to accept post-dated cheques

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.

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COMMENTS

Debasish Saha

3 years ago

In the present scenario the ECS is more reliable than PDC system. But option for depositing PDC should be there if it is convenient to the customer.
Dr. D.Saha

dipi

3 years ago

I feel that the outgoing RBI Governor was responsible for this. The reasons of an outgoing Governor favoring the banks, spoiling the Bank-Client relationship, can be interpreted in only one way. Vested Interest?

dipi

4 years ago

This favors banks,removes/damages the bank-client relationship. It seem now that the RBI chief was leaving and reasons only pointing to advantage to banks and not to clients shows that the intentions of the outgoing RBI chief are questionable.

My bank used to collect installments or I would deposit every month. They started to charge 2 check bounce charges every month when there was no check bounce and they were in way adding interest if payment was after due date.

S BHASKARA NARAYANA

4 years ago

When the same status of NI Act sec.138 is available to ECS on par with a Cheque, why not go an innovative Technology based speedy clearance concept.

nagesh kini

4 years ago

First and foremost, the post dated cheques or PDCs are not legal. They are not worth the scrap of paper they are written on. They spring to life only on the date mentioned thereon and not earlier. The RBI is seen to be sanitizing them for no valid reason

nagesh kini

4 years ago

First and foremost, the post dated cheques or PDCs are not legal. They are not worth the scrap of paper they are written on. They spring to life only on the date mentioned thereon and not earlier. The RBI is seen to be sanitizing them for no valid reason

PATTABHI

4 years ago

I fully agree.. it is very premature to go for this step at this stage where the payment systems covers only a percentage of bank branches. Also, there is human element in tne bank-borrower relationship where there is an appreciation of the problems and suitable adjustements made. The cash management at Companies, particularly in thew SME sector involves a fine matching of payable and receivables and when the Companies suffer because of non-payment of their bills/dues by Govt Departments etc. the Banker needs to take a realistic view and make necessary adjustments to the schedules. Perhaps it will work with the Housing, Car laons etc granted to salary earners, but in such cases there will be ECS even otherwise. This step indicates RBI is not fully appreciative of the nitty-gritties of day-to-day banking and the other ground realities.

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