In the bi-monthly monetary policy review announced on June 6, 2019, the Reserve Bank of India [RBI] has reduced the repo rate/the policy rate [rate at which the RBI lends money to commercial banks] from subsisting 6.0% to 5.75%. Seen in juxtaposition with reduction of 0.25% each notified in the previous two reviews [February and April 2019], the banking regulator has thus brought about a cut of 0.75% in a span of less than six months. In yet another significant move, the apex ban has changed its policy stance from hitherto ‘neutral’ to ‘accommodative’. Whereas, a neutral stance carries with it the possibility of reduction as well as increase [it may even connote no change], an accommodative stance can only mean...
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Category: Savings & Investment
RBI must expose willful defaulters
In 2015, the Supreme Court [SC] had held that the Reserve Bank of India [RBI] cannot withhold information on defaulters and other issues covered under the RTI [Right to Information] Act under the “guise” of confidence or trust with financial institutions [FIs] and is accountable to provide information sought by general public. The apex court had opined that the banking regulator was duty bound to furnish all information relating to its annual inspection report [AIR] on banks and other material under the RTI Act unless the material is exempted from disclosure under the law. It had also ordered that RBI should take rigid action against those banks and FIs indulging in “disreputable business practices”. Yet, under its “Disclosure Policy” [it...
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If populism can help Modi stay on, so be it
Three important highlights of the Union Budget – 2019-20 [interim] presented by Piyush Goyal, minister for railways and coal and ‘temporary’ in-charge of finance portfolio are: (i) Under PM Kisan Samman Nidhi, the centre will give Rs 6000/- per year to small and marginal farmers [land holding up to 2 hectare] to be deposited directly in their account to benefit a total of 120 million. The support will commence from December 1, 2018 with the first instalment of Rs 2000/- covering 4 months to be given immediately; (ii) Under PM Shram Yogi Mandhan, persons working in the ‘unorganized’ sector and earning less than Rs 15,000/- per month will get pension @Rs 3000/- per month on completion of 60 years age....
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Stopping pilferage, enhancing welfare, boosting growth
Addressing NRIs and Indian-origin people at the inauguration of the 15th Pravasi Bharatiya Divas convention in his parliamentary constituency of Varanasi in Uttar Pradesh on January 22, 2019, Prime Minister Narendra Modi referred to former premier Rajiv Gandhi’s remarks on corruption in the country saying Congress that ruled for years did nothing to stop the “loot”, while his Government put an end to it and transferred about Rs 5,80,000 crore directly to the people under various schemes. Modi recalled what Rajiv Gandhi had stated “of the funds Central Government sends, only 15 per cent of that reaches the people. If one rupee is sent from Delhi, only 15 paise reaches the villages, 85 paise disappear. Even as the country’s middle...
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Unshackle public sector banks
Banking is an inherently hugely profitable business. To get a sense, all that one needs to do is to look at the hundreds of thousand crore that a bank gets in savings account on which it pays a meager 3.5%-4% interest and earns a minimum of 10% by lending. Even on the funds it garners by way of term deposits [6.25%-7.5% depending on period], there is room for making good money. Yet, Indian banks especially public sector banks [PSBs] have posted huge losses in recent years leading to corresponding erosion in their capital and resultant impairment in their capacity to continue with lending. 11 out of a total of 21 PSBs were even put under Prompt Corrective Action [PCA] framework...
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NDA OVER UPA: NUMBERS WILL SPEAK
In terms of economic growth, the NDA has a distinct edge over UPA. This reality cannot be camouflaged by sheer window-dressing of numbers In 2015, the Narendra Modi Government switched over to generate data on growth in GDP at factor cost using 2011-12 as the base year (instead of the extant practice of base year 2004-05). Under this methodology, growth for the first four years of its stint was 7.4 per cent for 2014-15; 8.2 per cent for 2015-16; 7.1 per cent for 2016-17; 6.7 per cent for 2017-18. Meanwhile, a committee on Real Sector Statistics under Sudipto Mundle, set up by the National Statistical Commission (NSC), has come out with data for the past period (new series) using the new base...
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Robbing policyholders to pay depositors
The IDBI Bank – a public sector bank [PSB] in which the Government of India [GOI] holds 80.96% shareholding – is in deep financial trouble with non-performing assets [NPAs] as a percentage of the borrowings reaching a high of 28% as on March 2018. Despite infusion of Rs 10,600 crore in 2017-18 for its recapitalization, the capital adequacy ratio [CAR] is barely close to the minimum required 9%. In the budget for 2016-17, the government had announced its intent to divest majority stake and transfer control to a private promoter. After dilly dallying on this for over two years, the government has now taken a U-turn and decided to let Life Insurance Corporation [LIC] hike its stake in IDBI Bank...
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Taking on willful defaulters – Modi’s knock-out punch
The union government has promulgated an ordinance seeking to amend the Insolvency and Bankruptcy Code [IBC] – a law that was passed by the parliament last year aimed at faster and time-bound resolution of non-performing assets [NPAs] of commercial banks nearly 75% of which are with public sector banks [PSBs]. The resolution process involves the lender [read: bank] – under directions from the Reserve Bank of India [RBI] – making a reference of defaulting borrower to the National Company Law Tribunal [NCLT] which appoints interim resolution professional [IRP] for conducting the process. Under it, potential bidders make a bid for the company and the amount thus realized is used to pay back the loan. The process involves banks taking a...
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Has Modi kept his pledge on jobs?
Modi – government has come under flak for not redeeming its pledge made in the election manifesto to provide 20 million jobs every year. On the face of it, the charge may stick as the actual job creation during the last three years of its stint is a few hundred thousand. But, on a closure look, it turns out that during the last 7 decades since independence, if there is any political dispensation that has worked sincerely and with full dedication for solving problems facing the people including unemployment, it is the present government. All those watching the actions of Team Modi ‘objectively’ and ‘dispassionately’ will not reach any other conclusion. On jobs, which depend on expansion of economic activity...
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Deceleration in bank credit – a good omen
According to the Reserve Bank of India [RBI], during the financial year 2016-17, credit growth plunged to a whopping six-decade low of 5.08 per cent as against 10.7 per cent in the previous year [as on March 31, 2017, banks’ outstanding credit was Rs. 7,501,000 crores – down from Rs. 7,881,000 crores as of April 1 2016]. This is the lowest since 1953-54 when it had inched up by a paltry 1.7 per cent. Critics including former finance minister, P Chidambaram under UPA – dispensation cite low credit growth in support of their contention that the economy is not doing well. They have even used this to question high GDP [gross domestic product] growth data churned out by Modi – government viz. 7.1%...
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