The RBI will revert to the Multiple Price method for bond auctions on August 1, 2014, a year after it adopted the present method of Uniform Price.
On August 1, 2014, the central bank will auction a 10-year bond with a coupon rate of 8.40% for a notified amount of Rs 9,000 crore using this method. Two more bond auctions for a total of Rs 5,000 crore will be conducted on the same day.
Bond auctions could be classified as either Uniform Price-based or Multiple Price-based.
- In the Uniform Price-based, all successful bidders are required to pay for the allotted quantity of securities at the same rate, the auction cut-off one, irrespective of what they’d quoted.
- In a Multiple price auction, the successful bidders are required to pay for the allotted quantity at the respective price or yield at which they bid.
It was in June 2013 when RBI adopted the uniform price method, when bond yields were volatile, with foreign institutional investors leaving the domestic markets amid a dwindling currency. However, the macro fundamentals have improved since September2013, with the rupee stabilizing after recovering most of the losses. A new government at the Centre has reestablished hope among foreign investors. It is expected to speed up the opening to foreign investment and control the fiscal deficit. The fiscal deficit for the current financial year is targeted at 4.1% of GDP, as compared to 4.5% in 2013-14. The recent Union Budget set the target at 3.6% for 2015-16 and 3% for 2016-17.
Using a different method RBI would also be able to observe how the market reacts to different methods of auction.
A refused to consider the request even before the state government could prepare clarifications the apex bank had sought from it on crop yields for year 2013.
RBI, on its own, examined crop yields and bank savings patterns during the period the state government said farmers were under stress. The central bank found no parameter that justified a loan restructuring.
As per RBI, crop yields should be less than half the normal for banks to consider farm loan relief. RBI found no evidence of a drop in crop yields to that level in areas declared as calamity-hit by the Andhra Pradesh government. This conclusion was based on data generated by state government bodies like the Directorate of Economics and Statistics.
RBI scrutinized the waiver request in detail since the government was trying to use rescheduled loan payments as a proxy for its promise of farm loan waivers. Rescheduled farm loans were routinely implemented by banks in the past.
Following the Cabinet meeting, CM N. Chandrababu Naidu announced his government would waive over Rs 40,000 crore of loans at Rs 1.5 lakh per farming family and Rs 1 lakh per self-help group.
Farm loans overdue in Andhra Pradesh are pegged by banks at Rs 87,000 crore. As per banks, these dues surged after the Telugu Desam Party made loan waiver a manifesto promise in the recently-concluded state elections.
RBI Chief has spoken to the Chief Election Commissioner on how to prevent political parties from making such promises in future polls.
The Reserve Bank of India will designate at least six banks as Systemically Important Banks (SIBs), for the domestic financial market which will need to have higher capital than other banks to prevent the financial system from collapsing in the event of a crisis. The central bank would now work on identifying these banks which are too big to fail and would release a list of names in August 2015.
As per experts, the list may include State Bank of India, Punjab National Bank, Citibank, Standard Chartered Bank, ICICI Bank and HDFC Bank. Banks classified under SIB category will have to set aside more capital per loan than their peers. Size, interconnectedness, lack of readily available substitutes or financial institution infrastructure and complexity will determine the systemic importance of banks as determined by Basel global standards. But, as per RBI, in India, size would be given higher weightage than other factors.
Based on the category it is relegated, a bank will have has to set aside 0.2% to 0.8% of the loan as capital buffer. In simpler terms, if a bank was setting aside Rs 1 earlier, it would now have to set aside between Rs 1.20 and Rs 1.80. As per RBI, banks having a size beyond 2% of GDP will be selected in the sample. However banks whose size is less than 2% of GDP may also face rigorous norms. After the 2008 credit crisis, banking regulators across the globe are tightening capital norms for banks and other key financial institutions.
S S Mundra (60), Chairman and managing director of Bank of Baroda, is set to be appointed as the fourth deputy governor of the Reserve Bank of India (RBI) after PM Narendra Modi approved his appointment.
The veteran banker had begun his career as a probationary officer, and served for a short time at Union Bank of India, where he was executive director. In a rare move, he returned as the CMD of his parent bank (Bank of Baroda) and was seen as a surprise choice for the prestigous regulatory job. In fact, Mundra would have never been offered this post had it not been for K C Chakrabarty’s decision to resign before the end of his tenure as RBI deputy governor.
Currently, RBI has three deputy governors– H R Khan, Urijit Patel and R Gandhi.