India’s banking sector is celebrating a new milestone—its deposit portfolio crossed Rs100 trillion on 30 September. It has been a long wait. The collective deposit base of the banking system in Asia’s third largest and the world’s fastest-growing major economy took five years and seven months to double from Rs50.
Both payments banks and small finance banks, two new beasts on India’s banking turf, will be required to maintain a capital adequacy ratio (CAR) of 15% with Tier I (consisting of equity and reserves) and Tier II (long term debt, among other things) ratios equally split at 7.5% each. This is far higher than the CAR of the so-called universal banks, which can dabble in many banking activities that payments banks and small finance banks are not allowed to.
On 1 October, State Bank of India (SBI) chief Arundhati Bhattacharya’s tenure was extended by one more year, the announcement coming five days ahead of the end of her three-year term. It was not entirely unexpected, as SBI is in the process of merging five associate banks with itself as well as the Bharatiya Mahila Bank—launched in 2013 exclusively for economic empowerment of women—and Bhattacharya is probably the most competent person to complete the task. But few would have seen it coming almost a week ahead of her last day in office.
A quarter percentage point cut in the Reserve Bank of India (RBI)’s policy rate was not unexpected (although the market was vertically divided, a few, including me, were expecting a rate cut) but it’s not obvious why the central bank has decided to bring down its policy rate to 6.25%, a six-year low. It’s also very likely that this will be the last rate cut for this fiscal year.
On Tuesday, a group of five men and one woman will decide whether the Reserve Bank of India (RBI) should cut its policy rate—a decision which had all along been the prerogative of one person: the RBI governor. Indeed, there’s been a technical advisory committee (TAC) since June 2009 to give inputs for policymaking but, unlike the six-member monetary policy committee (MPC), it did not have statutory status and hence the governor was under no obligation to accept its suggestions. On most occasions in the past seven years, the RBI has not done what most members of TAC have wanted it to do.