The Rate Cuts
The Reserve Bank of India will shift to a system of announcing its policy statement bi-monthly with the first such policy being announced on April 1, 2014. Bankers widely expect RBI to hold on to rates given that pressure on inflation is easing and the rupee has also been firming up.Until the mid-90s, RBI had only two monetary policy reviews a year.After Bimal Jalan took charge as governor in 1997, he rechristened the process as monetary policy and introduced quarterly reviews. His successor Y V Reddy introduced a mid-quarter review, which resulted in an announcement every 45 days. And now it is bi monthly.
So this bimonthly review expectation is that RBI will cut rates. All kinds of arguments were being put forth. However it seems Mr Raghuram Rajan has stuck to his guns and to his target of finishing inflation once and for all.
Let us see how a rate change impacts the economy. The rate that is being talked about here is the rate at which RBI lends money to the banks. This sets the tone for interest rates of all the downstream, borrowings including HOME EMIs. So when RBI cuts the rate it reduces the cost of funds for the banks , which they may or may not pass it on to consumers by way of decreased loan rates.
Generally rate cuts are carried out for releasing liquidity into the economy, which is supposed to give a boost to the economic activity in the country. However spurt in economic activity like ,
fresh investments etc are not only a factor of liquidity but also macro-economic sentiments. A rate cut combined with big bang reforms will surely revive the investor and business sentiment. However it’s quite unlikely that only a rate cut will help in any way. There is a flip side to releasing more liquidity into the economy , it leads to inflation and that inflation impacts every person in the country. When prices of Food items rise the poor are the most affected and the impact is quite instant. While the positive spin off of rate cuts by way of increased economic activity, jobs etc have a inherent gestation period.
So Mr Rajan is being cautious and rightly so.
Ponderings on payments and Small Financing banks
Will the competition now intensify ,for garnering CASA, with the arrival of the small and payments banks ?
Will they be competitors or will banks themselves will form JVs or invest in them or be promoters of such banks?
Will financial products now reach to remote corners of India since these banks have been allowed to sell the safe financial products like Insurance and Mutual Funds?
Will existing players in the payments sector like Prepaid instrument issuers etc see this opportunity and jump in ?
Will we be able to have bank account with lesser/Nil QAB? And not pay charges to withdraw our own money?
The future in this regard will be exciting to watch. Often , very few of us can imagine the way the things evolve given the great environment by way of technology etc. All we know is that a there is a bulk of unbanked customers who want banking services and on supply side we have commercial banks who are not able to provide the same at the cost at which the bulk of customers can afford. This gap may be filled in by such small banks, of course with technology as enabler
The skeptic’s take on payment banks
Interesting article by Debashis Basu in Business Standard. He argues that payments bank are not allowed to lend thus defeating the objective of financial inclusion as also depriving them of a revenue source. He questions the over emphasis on financial inclusion and says small transactions are best left to done in cash. Read his interesting take on payment banks and their commercial viability
DOHA bank buys HSBC Oman operations in India
Doha Bank, which is planning to upgrade its branch set up in India into a wholly-owned subsidiary (WOS), yesterday received approval from shareholders to acquire HSBC Bank Oman’s operations in the South Asian country for about QR75mn.
The bank, which is aiming 30% of its net earnings from overseas operations, has chosen to acquire the tailor-made portfolio, in view of the time taken to achieve organic growth in the estimated Rs80tn Indian banking industry.
“India is a destination and it represents business opportunities,” Doha Bank Group CEO R Seetharaman told the media on the sidelines of extra-ordinary general assembly, where shareholders accorded their approval.
As per the terms, Doha Bank will make a single lump sum amount of Rs1.28bn (QR75mn) to HSBC Bank Oman, whose Indian branches — Mumbai and Kochi — together has assets to the tune of Rs3.4bn (QR200mn) and deposits of Rs1.17bn (QR70mn). (The exchange rate has been assumed at the latest figure of Rs17 to one riyal.)
HSBC Oman’s India operations have about 30 staff to serve 2,900 customer relationships. Foreign banks account for less than 1% of India’s total branch network, about 7% of the total banking sector assets and a sizeable 11% of profits as on March 2013.
Source : Gulf Times
Pay money to withdraw your own money
The new RBI directive on ATM usage has allowed banks to charge even for own bank ATM withdrawal as long as at least 5 free transactions are allowed every month. YES, you read it right, even on your own bank ATM).
For other bank ATM withdrawals the number of free transactions has been reduced from 5 to 3 in the six metro locations of Mumbai, New Delhi, Chennai, Kolkata, Bengaluru,
Beyond this, a fee of Rs.20/- per transaction would apply. But for locations other than these six metro centers, there is no change from the earlier norm.
RBI has now broadened the definition of the term 'transactions' to include even non-financial activities like balance enquiry, mini statement etc.
Though the RBI directive in this regard was effective from November 1, leading private sector banks like HDFC Bank and Axis Bank are implementing it from today (December 1).
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