Let us examine the likely impact of RBI Credit Policy announcement/measures on key parameters:-
Policy Rates
RBI has kept key rates viz. Repo rate, Reverse-repo rate, Bank rate and MSF rate unchanged but restoring Cash Reserve Rate (CRR) to 4% in 2 tranches - first 0.5% hike from 27th March 2021 followed by another rise of 0.5% w.e.f. 22nd May 2021 is likely to reduce income level of Banks - as interest is not payable on CRR balances. Consequently, there would be an upward pressure on interest rates. Though RBI has announced that CRR hike opens avenue for injection of additional liquidity, through variety of market operations, that will be sucked on restoring CRR to 4%, yet non-payment of interest on CRR balances is likely to reduce income level of the banks to certain extent. RBI policy maintained accommodative stance to support discernible economic revival.
Economic Indicators
GDP growth outlook for financial year 2021-22 is projected at 10.5%. Retail inflation linked to Consumer Price Index (CPI) is estimated around 5.2% level for Q4 of FY2020-21. Currency in circulation combined with deposits of commercial banks with RBI is termed as Reserve money which surged by 14.5% YoY led by currency demand. Money supply increased by 12.5% as on January 15, 2021, which is total stock of money circulating in an economy.
RBI Retail Direct
Retail investors allowed direct access by opening gilt investment account to participate in Government Securities (GSec) markets both primary and secondary through RBI. This step would mean investment in safest fixed income GSec instruments having sovereign guarantee. At present, Bank deposits are insured up to Rs 5 lakh only under Deposit Insurance and Guarantee Corporation (DICGC). This move will provide a safer option to conservative investors for buying and selling GSec, who are looking for assured returns on the long term basis.
Other Measures
RBI has extended Targeted Long Term Repo Operations (TLTRO) scheme to Non-Banking Finance Companies (NBFCs), which allows liquidity support to the extent of Rs 1 trillion to various sectors and banks until 1st October 2021.
The scheduled commercial banks need not maintain CRR on credit disbursed to new MSME borrowers. This exemption would be applicable to first time borrowers who will be availing credit facilities from banking system from1st January 2021 onwards. This exemption would be available to the extent of Rs 25 lakh per borrower for the credit extended up to fortnight ending 1st October 2021.
The requirement of maintaining additional capital conservation buffer of 0.625% on standard assets has been deferred till 1st October 2021, which would take overall requirement to 2.5% level.
RBI will constitute an expert committee on Urban Cooperative Banks (UCBs), involving all stakeholders to provide a road map to strengthen these banks, examine critical aspects, and quicker resolution of issues.
RBI has decided to integrate three existing Ombudsman Schemes for Banks, NBFCs, and Prepaid Card Issuers into a Centralized one to be rolled out by June 2021, for customer grievance redressal. This would facilitate customer-centric approach.
Banking regulator will issue guidelines for managing attendant risks in outsourcing, and to ensure a code of conduct is ensured by operators and participants of authorized payment systems, while outsourcing payment and settlement related services.
Please keep watching this space for latest updates on the economic aspects!
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