Nuts and Rajan. Participaory Notes (PNs) are nuts, conduits for kaalaadhan, don't you think so, Rajan? Why aren't you scrapping them?
Kalyan
| Wednesday , April 8 , 2015 |
http://www.telegraphindia.com/1150408/jsp/frontpage/story_13400.jsp#.VSSWb_yUeSo
Kalyan
| Wednesday , April 8 , 2015 |
Rajan rids banks of 'nonsense' | |
| Our Special Correspondent | |
  Mumbai, April 7: Sparks flew in the staid world of banking today when RBI governor Raghuram Rajan described as "nonsense" banks' justification for not cutting interest rates and the country's biggest banker reminded him that "in India, things work differently from international banks". However, within hours of Rajan asking other sceptics to "smell the coffee, guys" and described their logic as "nuts", the SBI took the lead in announcing a token cut in its base lending rate - the first such step by a major bank in many months although Rajan had cut a key rate twice this calendar year. It is against the base lending rate that home, auto and corporate loans are priced. HDFC Bank followed suit, matching the SBI's cut of 15 basis points. ICICI Bank announced a steeper reduction of 25 basis points. Following the change, the SBI's and HDFC Bank's base rate will come down to 9.85 per cent from April 13. ICICI Bank's rate will be 9.75 per cent from April 10. Since January, the RBI has cut by 50 basis points the repo rate or the rate at which banks borrow shot-term funds from the central bank. Despite the reduction, only four of the 47 banks had lowered their benchmark rates, against which home, auto and corporate loans are priced. Many of the banks had contended that their cost of funds were yet to come down. Rajan, whose economic views are said to be at variance with those of most Indian politicians, today dismissed their logic and articulated his displeasure in no uncertain terms. "Banks are sitting on money and their marginal cost of funding (has) fallen. The notion that it hasn't fallen is nonsense; it has fallen," he said. Rajan made these comments while speaking to journalists at a customary post-policy media conference. In the first bi-monthly monetary policy of this financial year, the RBI left the repo and the cash reserve ratio (CRR) unchanged at 7.50 per cent and 4 per cent, respectively. The CRR is the portion of bank deposits that must be maintained with the RBI and without earning any interest. Rajan dismissed as "irrelevant" the SBI's demand for easing the CRR, which will unlock cheap funds for banks. The SBI, India's largest bank, announced the token cut but not before striking a note of divergence. PTI quoted SBI chief Arundhati Bhattacharya as saying: "In India, things work differently from international banks." Bhattacharya did not mention by name Rajan, who had earlier served as chief economist at the International Monetary Fund (IMF) and has been professor of finance at Chicago University. Bhattacharya said: "We are very deposit-based. If you look at SBI, we have just 1 per cent market borrowing and the rest is basically long-term bonds or deposits, and deposits are the lion's share of it. So, it is based on long-term deposits." The bankers seemed to be suggesting that any lowering of lending interest rates will eventually reflect on deposit rates - a sensitive subject because it will affect savers who include pensioners. Aditya Puri, managing director of HDFC Bank, said: "If the deposit cost goes down, then there will be a base rate cut. If it doesn't, there won't be any base rate cut." But another banker who did not wish to be named said that since the banks had already reduced their deposit rates across various maturity buckets, today's lending rate tweak should not impact their margins. The SBI's Bhattacharya said the repo rate alone could not be the deciding factor. "You have to understand both ways... it takes a little time for the things to pass through. And, it is not only the cost of deposits that determines this, the passing through is also determined by the amount of liquidity, the amount of credit demand and competition, which also drives rates up or down. There are very many factors and repo is only one of the factors." Rajan also ripped into those who have been advocating that the reverse repo - the rate at which the RBI borrows money from banks - be made the operational or deciding rate. The operational rate can be linked to either the repo, at which the RBI lends to the system, or the reverse repo. There have been suggestions that Rajan should move to the reverse repo which, at 6.5 per cent, is 100 basis points lower than the repo rate. But Rajan said: "If I were to move to reverse repo today, that means the operational rate in the market would move down to 6.5 per cent. You are talking of a 100 bps cut in the policy rate. "Smell the coffee, guys. We are not going to cut interest rate by 100 bps overnight. The policy rate today is the repo rate, which is at 7.5 per cent. If I want to bring that rate down, I will cut the policy rate. The suggestion of moving to the reverse repo and moving to liquidity surplus is just nuts." |