Banking
RBI wants banks to cut base rates, not select lending rates

Banks are not able to respond quickly to the changes in monetary conditions or monetary policy signals because they carry a fixed cost over an extended period of time says the RBI 

 
Mumbai: With banks led by the country's largest lender State Bank of India (SBI) choosing to cut spreads on certain categories of loans instead of the base rate, Reserve Bank of India (RBI) deputy governor Anand Sinha today said the central bank would like the banks to cut the minimum lending rate to better carry forward its monetary policy measures, reports PTI.
 
"The base rate is supposed to be responsive to the changes in monetary conditions....Reserve Bank would definitely want the responses to be through the base rate," Sinha said at an IDBI Bank event.
 
Sinha further said an RBI committee on interest rates, headed by him, is looking into these aspects.
 
The committee, supposed to come out with report last month, has made progress and will be submitting it soon.
 
Replying to a question, Sinha said banks are unable to cut their base rates as per the monetary policy changes, because they carry the burden of fixed rate deposits and fixed costs to service that over a longer-time.
 
"Banks are not able to respond quickly to the changes in monetary conditions or monetary policy signals because they carry a fixed cost over an extended period of time," he said, flagging this as a subject of discussion with bankers during deliberations on floating deposit rates.
 
On asked if the RBI-- which has been discussing floating rate deposits but also stressing fixed rate loans -- is concerned over potential asset liability mismatches, Sinha replied in the affirmative.
 
"Asset liability concern, in the long-term, yes," he said, adding that so far banks have been successful in managing the longer gestation infrastructure projects.
 
Though, since January, the RBI has cut repo rate by 50 bps and CRR by 125 bps, and a 100 bps SLR cut last week, the effect of the same has not been passed on to the customers by banks by lowering interest rates as a whole.
 
Instead, banks have been cherry-picking interest rates reduction, and have not lowered their base rates, which would automatically lead to a similar reduction in interest rates for both existing as well as the new customers.
 
Some banks like State Bank and Union Bank of India, among others, have slashed interest rate on certain loan products like home loans and lending to SMEs, but have not cut the base rate, or the minimum rate of lending.
 
On the proposed spectrum auction, Sinha did not give direct reply to the question whether the spectrum could be taken as a collateral by banks lending to bidding telcos.
 
"If I recall, we had put some conditions around it.
 
Essentially, these are valuation-related issues, the fact that it should be available to the banks in case there is a default, something like that," Sinha said.
 

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COMMENTS

M G WARRIER

5 years ago

Before deregulation of interest rates, there were multiple interest rates in existence. Post-deregulation RBI and banks have experimented several methods to bring transparency and order in the interest rate regime. The media and the banks give an impression to the common man that interest rates on deposits and advances are directly related to RBI’s base rates which are announced by the central bank as part of monetary policy exercise. Although these rates do have an impact on banks’ interest rates, such impact is slow and sometimes the scenario changes even before the guidance percolates to the ground level. The floating interest rate system now being debated is worth a trial. In any case, the present confusion from which only the banks take advantage and give less to small depositors from whom major portion of the deposits are collected and take more from borrowers who do not have a ‘voice’ to protect their interests needs to be removed.

Dayananda Kamath k

5 years ago

banks have changed spread than base rate becasue they can fool the customers this way. and can charge different rates to different borrowers for same facility. and benefit can be passed on to chosen ones. inspite of various complaints rbi has not looked into the application of floating rate in equitable and just manner. rbi itself changed prime lending rate to base rate. primelending is nothing but base rate + profit margin charged to the best customer asper parameters. when prime rate is in force banks used to charge for 70% of their advances less than primerate. but when base rate concept is intorduced some of the banks are keeping the differance between base rate and primerate is as high as 6 to 8%. why the rgulator cannot see this simple logic and take action these banks for overcharging the customers.

NASA's $2.5 billion 'Curiosity' rover lands on Mars

Curiosity, the rover, is not equipped to search for living or fossil microorganisms but it will look for basic ingredients essential for life, including carbon, nitrogen, phosphorous, sulphur and oxygen

 
Pasadena: NASA's $2.5 billion Mars rover on Monday made a dramatic touchdown on the Red Planet, marking a successful end to the most sophisticated Mars attempt in history, reports PTI.
 
"Touchdown confirmed," said a member of mission control at NASA's Jet Propulsion Laboratory as the room erupted in cheers. "We are wheels down on Mars. Oh, my God." 
 
Scientists have found signs of water on the red planet, though it is now a dry place with a thin atmosphere, extreme winters and dust storms.
 
Curiosity is not equipped to search for living or fossil microorganisms but it will look for basic ingredients essential for life, including carbon, nitrogen, phosphorous, sulphur and oxygen.
 
Curiosity traveled nearly 570 million kilometers since it was launched in November.
 
NASA officials told reporters at a pre-landing news conference Sunday that the spacecraft was functioning properly as it sped toward its target.
 
Curiosity carries 10 science instruments with a total mass 15 times as large as the science payloads on the Mars rovers Spirit and Opportunity. Some of the tools are the first of their kind on Mars, such as a laser-firing instrument for checking elemental composition of rocks from a distance.
 
The rover will use a drill and scoop at the end of its robotic arm to gather soil and powdered samples of rock interiors, then sieve and parcel out these samples into analytical laboratory instruments inside the rover.
 
To handle this science toolkit, Curiosity is twice as long and five times as heavy as Spirit or Opportunity. The Gale Crater landing site places the rover within driving distance of layers of the crater's interior mountain.
 
Observations from orbit have identified clay and sulfate minerals in the lower layers, indicating a wet history.
 
The landing site was 154 million miles from home, enough distance that the spacecraft's elaborate landing sequence had to be automated.
 

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HC modifies CLB order; Allows Uninor to receive EoI from bidders till 8th August

The HC order came on a plea by Uninor against the CLB order which had stalled the auction of the telecom firm's assets on a plea by its Indian partner of the joint venture, Unitech Group

 
New Delhi: The Delhi High Court on Monday modified a Company Law Board (CLB) order and allowed Uninor to receive till 8th August the expressions of interest (EoI) from bidders interested in purchasing the telecom major, a joint venture of Norwegian Telenor and Unitech Group, reports PTI.
 
The CLB, on 3rd August had stayed the operation of Uninor's 1st August auction notice for sale of its assets, saying the proposed auction process appeared to be "very clever" one.
 
"I am modifying the order of the Company Law Board to the extent that the date to receive the EoI (i.e., the intention to purchase) from the bidders is extended till 8 August," said Justice Indermeet Kaur adding that the CLB will decide the petition on merit.
 
The court's order came on a plea by Uninor against the CLB order which had stalled the auction of the telecom firm's assets on a plea by its Indian partner of the joint venture, Unitech Group.
 

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