RBI's Shaktikanta Das has a few suggestions for banks to further boost India's financial strength
Dec 6, 2024
Synopsis
RBI MPC: The Reserve Bank of India (RBI) Governor Shaktikanta Das announced measures to address unclaimed deposits by segregating beneficiary accounts through Direct Benefit Transfer (DBT). The RBI also increased interest rate ceilings on Foreign Currency Non-Resident Bank (FCNR(B)) deposits to attract capital inflows, effective until March 31, 2025. Indian banks' financial parameters remain strong, and the RBI continues proactive supervision.
Reserve Bank of India (RBI) Governor Shaktikanta Das announced on Friday that Indian banks have been advised to address the issue of unclaimed deposits by segregating beneficiary accounts through Direct Benefit Transfers (DBT). This initiative is aimed at ensuring smooth flow of DBT amounts and improving transparency in the banking system.
Das emphasised that the financial health of Indian banks remains strong, and the RBI continues to adopt a proactive approach in supervising the financial sector. He noted that the gap between credit and deposit growth of Scheduled Commercial Banks (SCBs) has narrowed, and efforts to resolve issues are being made in a non-disruptive manner. Business restrictions are imposed only in extreme cases.
To further attract capital inflows, the RBI has decided to raise the interest rate ceilings on Foreign Currency Non-Resident (FCNR(B)) deposits.
From December 6, 2024, banks can offer higher interest rates on fresh FCNR(B) deposits, with maturities of 1 to less than 3 years at rates up to ARR plus 400 basis points, and for deposits with maturities between 3 to 5 years, up to ARR plus 500 basis points. This relaxation will be in effect until March 31, 2025. The RBI will monitor the progress of these measures.
Banks to get Rs 1.16 lk cr
In a bid to make available more money with banks for lending so as to boost economic activity, the RBI slashed Cash Reserve Ratio to 4 per cent from existing 4.5 per cent. This would lead to release of Rs 1.16 lakh crore to banks and improve their lending capacity.
The CRR is the percentage of a bank's total deposits that it is required to maintain in liquid cash with the RBI. The CRR percentage is determined by the RBI from time to time. Banks do not get any interest on this amount.
What happened in December RBI MPC meeting?
The RBI on Friday decided to keep the policy rate unchanged for the 11th time in a row but sharply lowered the GDP growth forecast to 6.6 per cent for the current fiscal, as against earlier projection of 7.2 per cent. The Reserve Bank of India (RBI) maintained the status quo on interest rate despite July-September quarter GDP growth falling to 7-quarter low of 5.4 per cent, as against its own projection of 7 per cent.
The rate increase cycle was paused in April last year after six consecutive rate hikes, aggregating to 250 basis points since May 2022.
Announcing the fifth bi-monthly monetary policy for the current financial year, RBI Governor Shaktikanta Das said the Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 6.5 per cent while keeping policy stance unchanged at neutral.
He said MPC will remain watchful of incoming macroeconomic data for future action.
The RBI sharply cut the GDP growth projection to 6.6 per cent from the earlier level of 7.2 per cent, while raising inflation target to 4.8 per cent from the previous projection of 4.5 per cent for the current fiscal.
[The Economic Times]
