The earnings season is in full swing. A few private banks have announced their March quarter results—great, good and ugly—but none of the public sector banks (PSBs) have done that as yet. To be sure, they are never in a hurry to announce their earnings, but many of them are particularly inhibited this time around as their March quarter earnings would not excite the market.
If you walk into the treasury room in any of India’s public sector banks these days, you’ll hear excited bond dealers shrieking over “breaking the support level” of the price of a particular government paper and the excessive volatility—the typical attributes of the stock market. In a little less than a year, the character of the Indian bond market has radically changed. From a buyers’ market, it has become a traders’ market.
The latest developments at two large private banks in India spotlight the role of the board of banks, the chief executive officer (CEO), corporate governance and the so-called conflict of interest. Eliminating conflict of interest is at the heart of provisions in the Banking Regulation Act, 1949, which governs the banking companies in India. Bimal Jalan was the first Reserve Bank of India (RBI) governor to make a formal policy announcement on corporate governance in the mid-term review of the monetary and credit policy on 21 October 2001.
The votaries of private banks so far have been enjoying a voyeuristic pleasure watching some of India’s public sector banks (PSBs) being stripped naked. The PSBs’ bad assets have been zooming for quite some time; growing incidents of fraud added to their woes. Against this backdrop, the clamour for privatization has been getting louder and analysts are busy calculating how much and how fast the share of PSBs in banking assets will get eroded.
Nobody could have asked for a less hawkish monetary policy, the first in fiscal year 2019. Bond prices rose (and yields dropped) and the bank stocks had a good day on bourses as the markets firmly believe that the next rate hike is quite some time away. The bar for a rate hike now is far higher than in February, when the monetary policy committee (MPC)—the Reserve Bank of India’s (RBI’s) rate setting body—last reviewed the policy.
One doesn’t need to be a soothsayer to predict that the Reserve Bank of India (RBI) will keep the repo rate unchanged at the meeting of its monetary policy committee (MPC) on 4-5 April, the first such meeting in the new fiscal year. Any change in the stance of the monetary policy is also highly unlikely. In its last review in February, the MPC left the policy rate unchanged at 6% and the stance remained neutral but the tone of the policy was cautious.