Come April, banks in India will have to link their floating rate retail loans and loans to micro and small enterprises to one of the four benchmarks – Reserve Bank of India’s (RBI) repo rate, the 91-day and 182-day treasury bills, any other benchmark market interest rate including overnight Mumbai interbank outright rate (Mibor), based on overnight call money rates, and even term Mibor with tenures of 14-day, one month and three months. This will ring the death knell for MCLR or the marginal cost of fund-based lending rate, at least partially (it will continue to be used for other loans). Once the new benchmark is in place, banks will not be allowed to change the spread over the benchmark rate unless the risk perception about a borrower changes.
This is a two-part series to demystify the Chanda Kochhar episode that has rocked ICICI Bank. In part 1 of the series, the author explains the reasons for the ICICI Bank’s board to rush to deny all allegations against Kochhar and then take some extreme steps against her. In February 2017, now sacked CEO & MD of ICICI Bank Ltd Chanda Kochhar had addressed a group of investors at a Singapore hotel at the bank’s in-house merchant banking outfit’s annual road show.
Almost every analyst was expecting a change in the Reserve Bank of India’s (RBI) monetary policy stance from “calibrating tightening” to “neutral”, and all six members of the central bank’s Monetary Policy Committee (MPC), in its last meeting of the financial year on Thursday, obliged them. As a bonus, the MPC also cut the policy rate by a quarter percentage point to 6.25 per cent -- the first such cut since August 2017.
Today, if we take a poll of Indian industrialists on their expectations from the Reserve Bank of India’s (RBI’s) last bi-monthly policy for the 2019 fiscal year, 10 out of 10 will pitch for a rate cut. They are also rooting for a cut in the banks’ cash reserve ratio (CRR) -- or the portion of deposits kept with the RBI -- to release money into the system. Indisposed finance minister Arun Jaitley too has asked for a rate cut, albeit indirectly -- saying, India cannot have a real rate of interest that's higher than anywhere else in the world.
What do PS Jayakumar, V Vaidyanathan and Chandra Shekhar Ghosh have in common? Well, the trio is currently anchoring the three most interesting mergers in Indian banking. Bandhan Bank Ltd, headed by Ghosh, has announced taking over Gruh Finance Ltd, a subsidiary of Housing Development Finance Corp. Ltd (HDFC), while Vaidyanathan’s Capital First Ltd has already been merged with IDFC Bank Ltd, and two relatively small public sector banks – Dena Bank and Vijaya Bank – are being merged with Jayakumar’s Bank of Baroda (BoB).
In August 2016, the chief executive officer (CEO) of a large bank celebrated the arrival of Insolvency and Bankruptcy Code (IBC), the new bankruptcy law of India. The jubilant boss of the bank, laden with a mound of bad assets, asked one of his colleagues how many days it would take to settle a bad loan under the new law. The banker’s response was 1,800 days,10 times the law actually stipulated! Needless to say that this cynicism was not appreciated.
A few months ago, the NBFCs (non-banking finance companies) were the flavour the season. Now the MSMEs (micro, small and medium enterprises) are. Both, for the wrong reasons.
The latest financial stability report of the Indian central bank, a biannual health check-up for the banking system, should be music to the ears of the CEOs of banks and the investors in bank stocks. The proverbial light at the end of the tunnel is, finally, in sight. The pile of bad assets, under which a few public sector banks (PSBs) have almost got buried, has started showing signs of erosion.