Tag: Shaktikanta Das

Govt to adhere to fiscal consolidation roadmap; inflation, bond yields, borrowing costs to trend lower: RBI Governor

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India (RBI) Governor Shaktikanta Das (RBI) on Monday (February 12) said he is confident of the central government sticking to its fiscal glide path of bringing the deficit below or to 4.5% levels by the end of the financial year 2025-26.

On how credible the government’s fiscal consolidation plan is, Das stated categorically, “The market was expecting 5.2%, 5.3 %but it is 5.1%. So therefore I think there is every reason to believe the government will adhere to the path of fiscal consolidation, whether 30, 40, 50 we would not like to comment on that.”

Speaking to reporters after the central bank’s customary post-budget board meeting with the Finance Minister in New Delhi, the Governor said he also expects the cut in FY25 government borrowing to help stabilise and moderate inflation.

“…lower quantum of borrowing, therefore, I would say is growth inducing and it has a positive impact, positive in the sense it would help to stabilise inflation, how much it would help to stabilise I would not like to quantify but it does help to stabilise inflation and it should help in moderating the inflation levels,” Das said.

On being asked why the government’s interest payments are continuing to show an upward tick, the Governor explained, “Interest payments as a quantum are linked to the bond yields.. so going forward when inflation is brought under control I think bond yields will soften and the borrowing costs of the government should also come down, the 10-year bond yield in any case has started softening and the 5 years also. The bulk of the government borrowing is in these two buckets.”

Despite a lower gross market borrowing target of ₹14.13 lakh crore for FY25, the government’s interest costs for the next fiscal are pegged higher than the current fiscal at close to ₹12 lakh crore (₹11.90 lakh crore). In other words, interest payments comprise over 84% of the government’s FY25 market borrowings or 70% of the ₹16.85 lakh crore fiscal deficit.

“When inflation is high central bank has to take monetary policy action by increasing the rates so naturally the government borrowings done during that period the cost will be higher but as we move forward as inflation has started moderating, going forward when inflation moderates, logically the final point will be where the bond yield also comes down,” RBI Governor explained.

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No review of Paytm Payments Bank decision: RBI Governor Shaktikanta Das

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Reserve Bank of India (RBI) Governor Shaktikanta Das asserted on Monday, February 12, that there will be no review of the central bank’s recent measures against Paytm Payments Bank (PPBL), saying the decision was taken after a comprehensive assessment of the functioning of the lender.

The decision, made on January 31, directed PPBL to cease accepting deposits or top-ups in any customer accounts, wallets, FASTTags, and other instruments after February 29.

Addressing the media after the 606th meeting of the Central Board of Directors of the Reserve Bank of India, Das categorically stated, “At the moment, let me say very clearly there is no review of this (PPBL) decision. If you are expecting a review of the decision, let me very clearly say there is (going to be) no review of the decision.”

Also read: Paytm to acquire ONDC startup Bitsila amid payments bank crisis

The RBI governor emphasised that decisions regarding entities regulated by the central bank are made after a thorough assessment. While expressing support for the fintech sector, Das reiterated the central bank’s commitment to safeguard the interests of customers and ensure financial stability.

The RBI is anticipated to release a set of frequently asked questions (FAQs) regarding the Paytm Payments Bank matter later this week. The central bank had cited persistent non-compliances and ongoing material supervisory concerns as the basis for its action against PPBL.

Previously, on March 11, 2022, the RBI had prohibited PPBL from onboarding new customers. In the latest directive, the RBI instructed Paytm Payments Bank not to accept deposits, credit transactions, or top-ups in various customer accounts and instruments after February 29, 2024. However, interest credits, cashbacks, and refunds are permitted even beyond this date.

Customers of PPBL are allowed unrestricted withdrawal or utilisation of balances from their accounts, including savings and current accounts, prepaid instruments, FASTags, and National Common Mobility Cards, up to their available balance.

Additionally, the RBI directed the termination of the ‘nodal accounts’ of One97 Communications Ltd, the parent company of the Paytm brand, which holds a 49% stake in Paytm Payments Bank Limited, classifying it as an associate rather than a subsidiary.

Also read: Paytm forms advisory committee chaired by former SEBI chairman M Damodaran

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RBI wants Indian banks to increase lending rates

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India (RBI) may have left the benchmark repo rate unchanged for the sixth review in a row, but it wants the country’s banks to push up the lending rates because inflation is well beyond the level the central bank’s comfort zone and may remain so through the whole of 2024.

Shares of top lenders like HDFC Bank, ICICI Bank, Axis Bank and Kotak Mahindra Bank saw a sharp fall in trade right as RBI Governor Shaktikanta Das concluded his address post the latest monetary policy review.

#CNBCTV18Market | Banks under pressure, ICICI, Axis Bank down more than 2% pic.twitter.com/UfT0QVkPKh

— CNBC-TV18 (@CNBCTV18Live) February 8, 2024

How do interest rates affect inflation?

The central bank hikes interest rates to reduce inflation. The RBI had increased rates by 250 basis points between May 2022 and February 2023. Governor Das’s contention is that not all of it has been passed on.

Inflation in India has cooled down —  from an average of 6.7% in 2022 — but not enough for the central bank to lower its guard. As shown above, retail is expected to be between 4.5% to 5% throughout the year.

ALSO READ: India’s banks are losing savings account money to mutual funds: Banking Secretary

Das has clearly expressed his intent to tame inflation down to his stated target of 4% or less. The latest consumer price index (CPI) for December 2023 showed an inflation of 5.69%, the highest in the preceding four months.

While the RBI expects inflation to cool down in the months ahead, its estimates show that the price rise is going to be stronger than what it’d like i.e. 4% or less. Why is it so?

RBI will not rest until inflation is back at 4%, the message from Governor Shaktikanta Das

Lending rates in the credit market have not increased proportionately, the RBI Governor highlighted in his address after the latest monetary policy review where the interest rates were left unchanged for the sixth time in a row.

When interest rates rise, people borrow less and spend less, keeping prices in check. “They want to see some amount of disinflation,” R Sivakumar, Head Fixed Income, Axis Asset Management Company, told CNBC-TV18.

But if the price rise, as per RBI estimates, is going to be 4.7% even in the October to December 2024 quarter, how effective is the policy transmission?

Transmission is a word used to describe the increase or decrease in lending rates following the changes to repo rate set by the RBI. Simply put, lending rates have to rise further.

What is the RBI really worried about?

Disinflation describes a slower increase in prices. Governor Das’ worries stem, in particular, from the volatility in food prices. Food inflation in December stood at 9.53%. The rise in vegetable prices was 27.64% a lot higher than the 17.7% (which is a high number too) a month earlier.

ALSO WATCH: RBI Governor’s address after the latest monetary policy review

Why the inflation rate matters for the stock market?

Stock market investors and traders like rate cut because it releases more money into the system that takes prices of risky investments like stocks higher.

The emphasis on inflation rate is important for equity markets too. “when they are really there at around 4%, they may change the stance and cut rates. So those are the areas where I think the markets will have to wait, before we can see the liquidity easing and also rate cuts,” Sanjay Parekh, Founder & CIO, Sohum Asset Managers said.

Both inflation and the RBI reaction to it has other components too. “The swift turn of tone and action pivots of the RBI in the last two years have been influenced purely by global narrative. We do not see RBI preceding the Fed (US Federal Reserve) in rate cuts,” Madhavi Arora, Chief Economist at Emkay Global, said.

READ: How rising bond yields in the US impact stock markets

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Banks must tell borrowers the entire cost of a loan including fees and other charges: RBI

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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RBI Monetary Policy: FY24 inflation forecast unchanged at 5.4%; FY25 estimate at 4.5%

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India, on February 8, kept its consumer price index (CPI) inflation forecast for the current financial year (FY24) unchanged at 5.4%. The central bank estimates the headline inflation for the next financial year (FY25) at 4.5%.

In its first monetary policy for 2024,  the RBI’s Monetary Policy Committee (MPC) alsorevised its projection for inflation for fourth quarter of FY24 (Q4FY24) downward to 5.0% from 5.2%.

Inflation has softened considerably and we expect it to moderate further in 2024, RBI Governor Shaktikanta Das said while announcing the policy.

“On the inflation front, large and repetitive food price shocks are interrupting the pace of disinflation that is led by the moderation of core inflation. Geopolitical events and their impact on supply chains, and volatility in international financial markets and commodity prices are key sources of upside risks to inflation,” he said

Das highlighted that the last mile of disinflation is always the most challenging, reiterating that stable and low inflation will provide bedrock for sustainable economic growth.

The MPC also left the policy rate unchanged, at 6.5%, for the sixth consecutive time. Consequently, Marginal Standing Facility (MSF) rate stays at 6.75%. MSF is the rate at which banks borrow overnight funds from RBI against government securities.

The MPC maintained the ‘withdrawal of accommodation’ stance aimed at controlling inflation and stabilising the economy by potentially increasing interest rates, and reducing the excess money supply.

Catch all the live updates from the RBI policy

While India’s headline retail inflation has declined from its 15-month peak touched in July last year, it is still above the RBI’s tolerance band of 2-6%. In December 2023, India saw its retail inflation rise to a four-month peak of 5.7%, up from 5.55% the previous month, primarily due to an increase in food prices, which climbed by 9.5% nationally.

The food price spike was sharper in the urban areas, surpassing 10%. Rural areas, while seeing a slightly less steep increase in food prices, endured higher overall inflation rates. Despite this uptick, the average inflation rate for the last quarter of the year was slightly below the RBI’s forecast.

Also Read: RBI MPC Meet 2023: Repo rate left unchanged at 6.5%, decision taken unanimously; Inflation a big risk

However, the government is confident that a slew of measures undertaken over the past months has helped reign in inflation. On February 7,  Union Finance Minister Nirmala Sitharaman told the Rajya Sabha that the prices of various food items including that of essentials such as dal (pulses), atta (flour), and onions have started declining and are now well within the tolerance band.

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RBI Monetary Policy Committee projects India’s real GDP growth at 7% for FY25

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has kept its growth projection for India’s GDP at 7% for the 2024-25 financial year, Governor Shaktikanta Das announced on Thursday, February 8. For the first three-quarters of FY25, the GDP growth rates are estimated at 7.2%, 6.8%, and 7%.

“This is the 3rd successive year of growth above 7%, FY24 momentum is expected to continue in FY25,” Das said. The governor stressed that the risks to growth are evenly balanced. The central bank governor said that private investments are picking up, and rural demand is gathering pace.

The consumer price index inflation target of 4% is yet to be reached, Das stated, noting that the monetary policy committee has to remain vigilant to ensure a successful last-mile navigation of disinflation. “Stable and low inflation at 4% will provide the bedrock of economic growth,” the Governor said.

The Reserve Bank of India did not hike its lending rate (repo rate), in line with the consensus expectations of market watchers and economists. The repo rate was left at 6.5%, unchanged for the sixth quarter in a row.

Catch all the live updates from RBI MPC announcement here 

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RBI MPC decision HIGHLIGHTS: A push for banks to increase lending rates, an FAQ for Paytm customers and more

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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RBI MPC decision HIGHLIGHTS: The Reserve Bank of India (RBI) on Thursday decided to keep the policy rate unchanged for the sixth time in a row in view of global uncertainty and the need to bring down retail inflation to 4%. Following the RBI’s decision to maintain the status quo, banks and financial institutions will largely keep lending rates stable.

RBI had last raised the repo rate in February 2023 to 6.5% after six consecutive rate hikes aggregating to 250 basis points since May 2022. Announcing the decision of the Monetary Policy Committee (MPC), RBI Governor Shaktikanta Das on Thursday said it has decided to keep the policy repo rate unchanged on the basis of an assessment of the current and evolving macroeconomic situation.

MPC also decided to remain focused on the withdrawal of accommodation to ensure that inflation progressively aligns to the target while supporting growth, he said. These decisions are in consonance with the objective of achieving the medium-term target for Consumer Price Index (CPI) inflation of 4% within a band of +/- 2% while supporting growth.

For 2024–25, the RBI has projected a growth rate of 7% and retail inflation at 4.5%, with risks evenly balanced. The real GDP growth for the next financial year is projected at 7%, with Q1 growth at 7.2%, Q2 at 6.8%, Q3 at 7%, and Q4 at 6.9%.

Here are the latest updates from the RBI monetary policy decision today:

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Exclusive | RBI Governor Shaktikanta Das: ‘There is never a dull moment as a central banker’

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Reserve Bank of India (RBI) Governor Shaktikanta Das said on Thursday, January 18, that the country has navigated the myriad challenges very well despite a challenging journey in the last four years like every other country. Das was speaking to CNBC-TV18 at Davos on the sidelines of the annual World Economic Forum 2024 meet.

“India has navigated well in terms of macroeconomic stability, growth, and financial stability; in terms of monetary policy actions and their outcome and bringing inflation under control.”

On global uncertainty, particularly the recent attacks on cargo vessels in the Red Sea causing disruptions and delays in the global supply chain and increasing logistics costs, Das acknowledged that it makes policy-making “complex.” The RBI Governor added that while India will be able to deal with the existing challenges, we have to see how it all plays out in the next few weeks or months.

On interest rate cuts, Das dashed hopes of a cut in interest rates anytime soon.

“Our policy has to remain actively disinflationary till we reach the target of 4% on a durable or sustainable basis, and that is our current stance.” A premature pivot in policy can prove costly for the economy, he added.

On the economic growth estimates, Governor Das said when the RBI raised its projection for the current year to 7% from 6.5%, it was seen as being too optimistic, even though the RBI considered it a conservative estimate. However, the first advance forecast for gross domestic product (GDP) released by the National Statistics Organisation (NSO) has now pegged the growth at 7.3%, he highlighted.

For the next year too, the central bank expects growth to touch 7%, and this would mean four successive years of growth at 7% or more, Das noted.

Governor Das also stated that the regulator has not prescribed any credit-deposit (CD) ratio for banks to maintain, nor does it propose to do so at the moment.

His comments come after there were indications over the past few weeks that the banking regulator is uneasy about the elevated CD ratio of certain banks, which could potentially pose a credit or liquidity risk.

On cryptocurrencies, the RBI Governor made it clear that the tech part of cryptocurrencies and tokenisation needs to grow. However, this aspect has to be differentiated from crypto, which is a speculative product and marketed as an asset.

“The technology part of it needs to grow. But the product, which is bought and sold in the market, which is traded, is a highly speculative activity; it has several downsides, which can pose risks to financial stability,” Das told CNBC-TV18.

Explaining the stance that institutions such as the IMF need to take a much more balanced, nuanced view of emerging markets, Das said, “Individual emerging market economies have to insulate and protect their economies from the spillovers of the global currency movements and the fluctuations there, to ensure the stability of their currencies… The Reserve Bank’s intervention in the currency market is only to prevent excessive volatility.”

On the capex cycle, Das said that the RBI is actively supervising all aspects of the sector and will act whenever we see a risk anywhere.

On his five years as the RBI governor, Das said, “There is never a dull moment as a central banker.”

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RBI has not mandated any number for banks’ CD ratio: Gov Shaktikanta Das clears the air

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India (RBI) Governor on Thursday stated that the regulator has not prescribed any credit-deposit (CD) ratio for banks to maintain, nor does it propose to do so at the moment.

Speaking to CNBC-TV18 on the sidelines of the World Economic Forum at Davos, Governor Shaktikanta Das said that as the regulator, the RBI simply wants to ensure that there is no unnecessary exuberance in lending and that there remains some sort of correlation between the credit extended by banks and the deposits available with them.

“We have not mandated any (CD ratio) number… that this shall be the CD ratio.. and at the moment we don’t propose to, because the credit-deposit ratio is just one of the parameters to assess the health of the bank; there are several other parameters. So you have to look at it in totality,” Das said.

The comments come after there were indications over the past few weeks that the banking regulator is uneasy about the elevated credit-deposit (CD) ratio of certain banks, which could potentially pose a credit or liquidity risk.

The Governor added that the RBI was only concerned that there is no exuberance in lending and a mismatch in assets and liabilities that could lead to risk build-up.

“There should not be exuberance in lending, and there should be some correlation between deposit base and credit growth. But in terms of hard-coding it in terms of a particular number, there is no proposal in our mind, and we have not prescribed any such number.”

“Our deposit growth in the last 1-2 years has been around 12-13% and credit growth has been about 15%.. You see it is not that you get an X amount of deposit and you extend the X amount as loans. It’s not like that. Money creates money; there’s a money multiplier in the market, so obviously credit will be a little higher. The question is if credit is unduly higher or if it has some correlation with the deposit base. At the systemic level and at the individual entity level, at the moment we don’t see any risk,” Das told CNBC-TV18.

Incidentally, Axis Bank chief Amitabh Chaudhry also recently told CNBC-TV18 in an interview on the sidelines of the World Economic Forum at Davos that if the RBI were to mandate a number for banks on the credit-deposit ratio, every bank would have to re-look at their balance sheets. He said that while the RBI was worried about some exuberance it was seeing on the credit growth side, especially for unsecured retail loans, he didn’t think the RBI would “ever mandate a number on banks’ CD ratio.”

What is the credit-deposit ratio anyway?

The credit-deposit ratio (CDR) is a financial metric representing the percentage of loans a bank has issued relative to its total deposits. Calculated by dividing total loans by total deposits and multiplying by 100, the CDR offers insights into a bank’s lending practices and risk exposure.

To explain, consider a hypothetical entity, Happy Bank, which has total loans amounting to $80 million and total deposits of $100 million. The credit-deposit ratio (CDR) for the bank can be calculated using the formula:
CDR= (Total Loans/Total Deposits) x 100

In this example, Happy Bank’s credit-deposit ratio is 80%. This means that 80% of the bank’s deposits are being utilised for lending activities.

A higher CDR suggests that a significant portion of the bank’s resources are allocated to loans, indicating a more aggressive lending strategy. It could potentially stimulate economic growth but also implies higher risk, as a large portion of the bank’s assets are tied up in loans. Conversely, a lower CDR would indicate a more conservative approach, with a larger proportion of funds held in liquid assets or lower-risk investments. Regulators often monitor CDR to ensure banks maintain a prudent balance between lending and risk management.

Typically, in the case of Indian banks, the regulator does not prescribe a specific number to banks and leaves it to their commercial decision. However, if the CDR is excessively high for individual banks or the system and could turn into a potential risk, the RBI as the supervisor and regulator of these financial entities, could point out the risk.

Current CD ratio, credit and deposit growth rates

Credit offtake increased by 20% year-on-year (YoY) for the fortnight ended December 29, 2023, at ₹159.6 lakh crore. These YoY figures are not directly comparable, as the data reported by the RBI as of December 29, 2023, includes the impact of the merger of HDFC with HDFC Bank. Excluding the impact of the merger, the growth stood at 15.7% YoY for the fortnight.
At the same time, deposits rose at 13.2% YoY (or 12.6% ex of the HDFC merger) for the fortnight to reach ₹200.8 lakh crore as of December 29, 2023.

At a system-wide level across all scheduled commercial banks, the latest data from RBI shows that the Credit-deposit ratio stood at 79.48% as on December 29, 2023, compared to 75.02% as on December 30, 2022, 71.93% as on December 31, 2021, and 76.47% as on December 20, 2019.

Why has the CD ratio been going up?

Bank deposit rates have yet to catch up with the 250 basis point rate hike undertaken by the RBI, with lending rates increasing faster than deposit rates in the cycle of monetary tightening. This has made deposits relatively unattractive, with investors diverting some of their funds towards the market instead of bank deposits to chase better returns. At the same time, credit growth has been growing in double digits.

This aggressive credit expansion, coupled with slow deposit growth, has led to CD ratios going up.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

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RBI always monitoring the credit growth, will act as and when needed: Gov Shaktikanta Das

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India (RBI) Governor Shaktikanta Das acknowledged signs of exuberance and stress in personal loans, especially unsecured loans, on Thursday, January 18. In an exclusive interview with CNBC-TV18 at the World Economic Forum summit in Davos, Das said that the RBI has acted pre-emptively to avert potential stress or exuberance in credit growth.

He stated that when signs of a potential problem becoming widespread emerge, the central bank takes prompt action.

Responding to concerns about lending practices, Das clarified, “We have not stopped any lending. We have only suggested that banks should provide for any further lending in their accounts.”

He asserted that the decision was well thought out to prevent a new source of stress for the Indian banking sector.

Das revealed that stress tests indicated banks’ capital adequacy at 16.8%, assuring that banks would maintain capital levels even in extreme stress scenarios.

He noted a real improvement in risk management and governance practices at banks.

On the NBFC sector, Das expressed optimism, saying, “NBFCs have definitely rebounded, and the numbers are quite robust.”

He acknowledged the crisis of confidence in the NBFC space post-ILFS and highlighted that the RBI’s measures have successfully addressed these concerns.

Speaking on the digital lending landscape, Das acknowledged the exponential growth of fintech companies.

He emphasised the need for regulation, stating that the RBI has appointed a panel to build a framework for regulating digital lending and has issued guidelines.

“RBI was not trying to stifle digital lending activity. Guidelines have increased trust and confidence in the practice,” Das asserted.

Das stated that efforts are underway to encourage technological innovation, but within well-formed parameters. He mentioned the establishment of a Self-Regulation Organization (SRO) as an intermediary body for the fintech sector.

While discussions are ongoing regarding the ambit and structure of the SRO, Das emphasised the goal is to ensure that the fintech ecosystem grows robustly within a properly regulated environment.

ALSO READ | WEF 2024: India a source of stability, growth amid tough global environment, says RBI Guv

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow