RBI TIGHTEN CASH
Tight liquidity forces banks to tap debt markets, shell out more
"To a certain extent, the year-on-year rise in the bank borrowing numbers is a reflection of the merger between HDFC and HDFC Bank. But apart from that, it is clearly a reflection of the tightness in the liquidity and that was, to a certain extent, exacerbated in the month of May because government spending was restricted during the Union election," said Soumyajit Niyogi, director at India Ratings & Research.
We don't expect rate cut in 2024 unless growth or inflation surprises on downside: Tanvee Gupta Jain
I think the political outcome was suggesting that there is kind of a weak sentiment at the lower end of the income pyramid. And whether we accept it or not but India has seen a K-shaped consumption recovery post the pandemic. So, most of the high frequency data that we track are clearly indicating that affluent, premium segment demand in India has been doing well.
Liquidity deficit surges to four-month high
The shortfall of funds has pushed up the weighted average call rate (WACR), which represents banks' overnight cost of borrowing and functions as a determinant of other borrowing costs in the economy too. On Wednesday, the WACR closed at 6.75%, the same rate as the RBI's Marginal Standing Facility (MSF).
RBI announces reduction in the quantum of the government’s treasury bill sales
The Reserve Bank of India (RBI) has responded to tight liquidity conditions in the banking system by announcing a significant reduction in the government's treasury bill sales and introducing a new selection of bonds for the Centre's buyback operations. This move aims to alleviate cash constraints for banks, which have been exacerbated by muted government spending during the ongoing general elections. By reducing the supply of treasury bills and offering bonds for repurchase at acceptable prices, the RBI seeks to inject liquidity into the banking system and ease borrowing costs for banks.
Tighter regulations on personal loans and project finance may hurt banks in FY25
Indian banks had a strong fiscal 2024 but face challenges in the current year due to regulatory changes impacting credit growth and net interest margins. Return ratios and riskier lending are also areas of concern as the market adapts.
Govt evaluating RBI proposal for higher infrastructure provisioning; bankers, NBFCs voice concern
Lenders may oppose the draft rules, which proposes provisioning of up to 5% from current 0.4%, due to concerns over rising interest rates and potential disruption to capital expenditure. Banks plan to lobby against the steep increase, arguing it could affect project viability and economic momentum. State-owned NBFCs and infrastructure firms are also raising concerns, emphasizing the need to balance risk and support for infrastructure financing.
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Indian lenders to appeal RBI's tough project finance proposal, sources say
Indian lenders are set to appeal against a central bank proposal to tighten rules for infrastructure project loans. The Indian Banks Association (IBA) is gathering inputs and will write to the central bank, opposing the imposition of higher provisions for under-construction projects. The central bank proposed that banks set aside a provision of 5% of the loan amount for projects at the construction phase, which can be reduced to 2.5% when the project becomes operational and 1% when a certain level of cash flow is achieved.
Credit demand, low liquidity boost deposit rates at banks
Despite RBI's unchanged rates, lenders raised deposit rates by 96 bps in FY24 due to rising credit demand. Liquidity tightened with incremental cash reserve ratio, leading to a multi-year high liquidity deficit.
RBI steps up scrutiny of retail lending, targets top-up home loans
RBI tightens supervision on retail lending, focusing on mortgage top-ups, algo-based credit models, and co-lending. It aims to manage risks in the financial system amid rapid credit expansion and global economic uncertainty. The RBI typically uses moral suasion - speeches, calls to bank executives, individual meetings - as initial steps to prod banks, before considering more assertive enforcement.
Tata Sons charting new path to sidestep Dalal Street
Tata Sons net debt as of September last year was ₹15,200 crore, according to rating company Crisil. Tata Sons has substantial, stable income from group entities, including Tata Consultancy Services (TCS), through dividends and buybacks, which should be sufficient for meeting interest obligations and planned investments. Its cash equivalents were ₹2,000 crore.
Right strategy is to keep cash in portfolio and buy on 10-15% dips: Dipan Mehta
Dipan Mehta advises keeping cash in the portfolio for strategic reasons, as investing during a correction ensures excellent returns in the next three years. Compliance and responsible lending are priority for NBFCs like IIFL and JM Financials. At 25-30% correction, a whole host of midcap ideas also will come through. Right now investors need to really assess the risk return profile of their portfolios.
Juspay, others secure payment aggregator nod; Paytm shares rebound
Zoho is the first enterprise Saas player to get the payment aggregator nod from the RBI, joining the likes of Razorpay, Cashfree, Zomato and others.
Paytm Payments Bank: India's startup rockstar, Paytm CEO Sharma, battles regulatory crisis
Vijay Shekhar Sharma, India's startup king, faces a crisis as investors plunder Paytm's valuation due to regulatory action by the central bank, threatening significant business disruptions. Sharma aims to restore investor confidence and keep operations running. Paytm's valuation has crashed after its IPO, and analysts say the company needs to restore credibility. Sharma's ambitions and the demonetisation move in 2016 transformed Paytm into India's premier digital payments platform. Despite the challenges, Sharma remains undeterred and committed to serving the nation. The future of Paytm's expansion plans and customer retention are uncertain due to the regulatory roadblock.
Government's cash surplus tops Rs 3.4 lakh crore
Apart from the deceleration in government spending, higher direct tax collections and a likely sharp rise in issuances of Treasury Bills by the Centre in FY24 were factors pushing up the government's cash balances, analysts said. The flow of government cash balances to and from the banking system is a key factor that influences liquidity conditions.
Fed pivot will dominate year of rate cuts in turn of global cycle
The US Federal Reserve will lead the pivot for richer countries after its policy makers signaled 75 basis points of cuts for the year, marking an abrupt shift from previous warnings that rates could still go higher through much of 2024.
For next six months, no change in interest rates expected: Mahendra Jajoo
Mahendra Jajoo says: “At the beginning of 2023, inflation was still very far away from the Central Bank's target. Now at the end of 2023, I think we are at the fag-end of the rate hike cycle. Therefore, I expect the rates should be stable to lower in the next year.”
RBI's repo sees strong demand, traders eye more cash infusion in Q4
"Shortage of funds will only get exaggerated in the last quarter (of the fiscal year), which ideally also sees the strongest credit growth," a senior treasury official at a private bank said. "We expect frequency of such repos to increase."
RBI may not have to drain cash further as core liquidity declines
At ₹2.23 lakh crore as on December 15, the core liquidity has declined sharply from the peak surplus of ₹12 lakh crore from September to October of 2021 during the post-Covid phase in which the RBI had infused large amounts of funds into the banking system to ensure flow of credit to productive sectors during the crisis, analysts said.
RBI allows reversal of liquidity facilities under SDF and MSF even on weekends, holidays
The Reserve Bank of India (RBI) has adjusted liquidity tools, the Standing Deposit Facility (SDF) and Marginal Standing Facility (MSF), allowing reversal of facilities on weekends and holidays from December 30. The move aims to improve liquidity management amid high utilization by banks. The RBI maintained the repo rate at 6.5% Governor Shaktikanta Das mentioned that deficit liquidity was due to festive season expenses but anticipates easing conditions with increased government spending. The RBI remains agile in liquidity management amid evolving economic dynamics, the governor said.
Is the December policy setting the stage for the roadmap ahead in 2024?
However, the pace slowed in the second half, with only four 25-basis-point rate hikes executed by these banks.
State-run banks to lower bond purchases as liquidity tightens, say treasury officials
Bond yields have spiked since Oct. 6, when the central bank said it will keep monetary policy restrictive and sell bonds to manage banking system liquidity. Bond prices move inversely to yields.
Aligning market realities with policy goals
The RBI, since the beginning of the tightening cycle in May 2022, has been talking about focusing on the withdrawal of accommodation. Nearly 17 months later, the situation is hardly what the RBI wanted: By September-end, core liquidity was ₹2.8 lakh crore and that is set to rise to ₹3.3 lakh crore with the total withdrawal of the Incremental Cash Reserve Ratio
Liquidity deficit surges to a 4-year high of Rs 1.47 lakh crore on tax outflows
An injection of funds by the RBI implies deficit liquidity conditions in the system. Outflows on account of quarterly corporate advance taxes and goods and services tax have drained banks of funds.
Incremental CRR: As liquidity tightens, banks push CDs
The acceleration in the issuance of CDs — which are short-term debt instruments used by banks to raise funds —— comes after the RBI imposed an incremental Cash Reserve Ratio (ICRR) of 10% on the growth in bank deposits from May 19 to July 28.
RBI may tighten cash conditions, but CRR hike unlikely- Traders
The Reserve Bank of India may look to tighten domestic rupee liquidity to quell inflationary pressures but will refrain from permanent cash withdrawal, several traders and analysts said ahead of Thursday's monetary policy review. The central bank is expected to hold policy rates steady but could turn more hawkish given that inflation in July is likely to have risen above its comfort band.
As liquidity tightens, bank CD sales jump 3-fold in FY23: RBI policy report
The RBI's March bulletin had said that banks' fund mobilisation through CD issuances was Rs 6.3 lakh crore in 2022-23 up to March 10, as against Rs 2 lakh crore a year ago. The sharp increase in issuance of CDs came amid tighter liquidity conditions and booming demand for credit.
Indian companies likely to raise funds via public issues in 2023 as cash tightens: Bankers
"As rates are settling at higher levels, retail investors would be keen to put funds in public issues," said Ajay Manglunia, managing director and head of investment grade group at JM Financial.
Centrum Housing to acquire National Trust Housing biz in a cash deal
The deal value could not be immediately ascertained, but the acquisition would be a cash deal, a person familiar with the matter said. The deal is likely to be signed very soon, perhaps in a day or two, the person said.
RBI tightens rules for uncovered foreign currency exposures
At present, banks’ exposure to an entity arising from derivative transactions is excluded from UFCE or Unhedged Foreign Currency Exposure rules. This exemption has now been extended to include factoring transactions.
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