NEWS ANALYSIS Apr 10, 2013

[Rajesh Desai]

BANKING

 

Drop plan on new banks, Finance panel tells RBI chief

The Parliamentary Standing Committee on Finance almost in one voice want the Reserve Bank of India to drop the move to issue new banking licences. Reason why they demand soo is that the guidelines could open an avenue for corruption. The members feared the guidelines would result in corruption and urged the RBI to drop the move. Though some MPs supported the RBI’s plan, they argued that the final guidelines will not encourage anyone to start a bank.

Major Concerns

·         Global situation demands more caution from the RBI to issue new banking licences.

·         Countries such as the US have not allowed corporate players to enter the banking sector.

·         RBI must ensure that allowing more private players in the country does not pave the way for creating more black money.

RBI Governor D. Subbarao briefed the panel on the final guidelines to allow corporate houses and public sector entities with “sound credentials and a minimum track record of 10 years” to start banks.

 

RBI asked to restore priority sector lending tag for bank loans to NBFCs

A stable long-term policy regime and recognising bank loans to non-banking financial companies (NBFCs) as priority sector lending were some of the key demands that NBFCs placed before the Reserve Bank of India. In their customary pre-policy consultative meeting with the RBI, the NBFCs articulated the problems faced by them and what help they would need from the regulator.

Mahesh Thakkar, Director General, Financial Inclusion Development Council, said, “We requested the RBI to restore the priority sector lending tag for banks lending to NBFCs. This would help NBFCs access funds at cheaper rates from banks.”

Earlier, the banking regulator had stripped the priority sector tag for bank lending to NBFCs. Thus, the banks lost the incentive to lend to NBFCs at a cheaper rate. NBFCs, therefore, had no choice but to pass on the high cost of funds to the customers in the form of higher lending rates. In the meeting, NBFCs also requested the RBI to further liberalise the external commercial borrowing norms to access cheaper funds from overseas markets.

Retail loan growth likely to be muted in first-half of this fiscal, say bankers

Growth in the housing and automobile sectors is likely to remain flat in the first six months of 2013-14, according to bankers. This, along with lacklustre economic growth and high inflation, will find reflection in muted retail loan growth.

According to S. V. Parthasarathy, Head-Consumer Finance, IndusInd Bank, “The retail loan segment will continue to remain under pressure till September 2013. The commercial vehicle (CV) segment had seen de-growth in 2012-13, while housing sector lending saw a correction after the boom in 2011-12. The correction is likely to continue for the first two quarters of FY14.

As per RBI data, year-on-year (y-o-y), bank credit increased at a slower rate of 14.4 per cent in February 2013 against an increase of 15.4 per cent in February 2012.

 

 

Regards,

 

Team Microsec Research

 

 

 

Microsec Capital Limited

Tel: 91 33 30512100

Fax: 91 33 30512020

 

--
CA. Rajesh Desai