Within an hour of Reserve Bank of India (RBI) governor Raghuram Rajan announcing a 50 basis point (bps) policy rate cut, finance minister Arun Jaitley called a press conference in Delhi’s North Block, which houses the ministry, and read out a prepared statement saying the rate cut would provide support to the real economy and help in recovery process in Asia’s third largest economy. One basis point is one-hundredth of a percentage point. On being asked whether the central bank has cut the rate at the finance ministry’s insistence, Jaitley’s cryptic answer was, “It’s up to you to speculate.
The swap markets are pricing in a quarter percentage point rate cut on 29 September when the Reserve Bank of India (RBI) reviews its monetary policy. Most analysts also expect the Indian central bank to opt for yet another round of rate cut, the fourth in 2015, to bring down the policy rate by a full percentage point—from 8% in January to 7%. The reason behind this is a sharp drop in inflation and a near certainty that retail inflation will remain lower than the Indian central bank’s January target of 5.
Indians holding gold will now be able to deposit it at commercial banks and earn interest on it. They will also be able to buy bonds backed by gold and earn interest on such bonds instead of owning physical gold itself. Finance minister Arun Jaitley spoke about the gold monetization scheme as well as the gold bonds in his 2015-16 Budget speech in February and the cabinet approved it about a fortnight ago.
After giving licences to 11 payments banks in August, the central bank on Wednesday announced a fresh set of 10 licences—this time for the so-called small finance banks. Eight of them are from the microfinance industry, which was on the verge of collapse just five years back. Some 17 microfinance institutions, or MFIs, applied for licences and nearly 50% of them succeeded in convincing the Reserve Bank of India (RBI) about their ability to offer banking services to the masses in Asia’s third-largest economy.
A few senior executives of the state-run banking industry disagreed with what I wrote a week ago—that they are apprehensive about new banks eroding their customer base. According to them, state-owned banks have the strength and agility to take on competition. When the first set of new banks appeared on the scene in the mid-1990s, core banking solutions were something unknown to the state-run lenders, but they embraced the technology and changed the way banking was done.
Mumbai: Some overseas investors and many in India’s corporate sector believe that Reserve Bank of India (RBI) governor Raghuram Rajan has been doing a fantastic job, but they have one complaint: Rajan, who completed his second year in office last week, like his predecessor D. Subbarao, has been behind the curve. While Subbarao was slow in raising interest rates, allowing inflation to surge, Rajan has been slow in cutting rates.