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Banking

RBI leaves Repo unchanged, SLR slashed by 50 basis points

As per RBI’s third bi-monthly monetary policy statement for 2014-15 the central bank has not made any change in Repo rate which is currently at 8%. The Reverse Repo rate has also been left unchanged at 7% and the Cash Reserve Ratio (CRR) is also the same at 4%. The only major change is in Statutory Liquidity Ratio (SLR) which has been slashed by 50 basis points (bps) to 22% from previous 22.50%.

With the Budget reiterating commitment to the medium-term fiscal consolidation plan and setting the target of 4.1% of GDP as the fiscal deficit for 2014-15, banks now have the space to extend credit to the productive sectors in response to its financing needs as growth gains momentum.

RBI to keep enhancing forex reserves cover: Bank of America- Merrill Lynch

As per a report by Bank of America- Merrill Lynch, the Reserve Bank of India (RBI) will continue to buy dollars to increase the foreign exchange reserves to further support the country’s import cover.

The forex reserves decreased to $ 320.564 billion in the week to July 25, 2014 significantly lesser than the all-time high of $ 321 billion in September 2011.

As per the report:

  • RBI is likely to continue increasing forex to protect against contagion.
  • RBI needs to raise $ 80 billion to maintain the current import cover of 8 months by March 2016.
  • In May and June 2014, the central bank had bought $ 28.3 billion of forex forwards.
  • This completely covers RBI’s short outstanding forwards position including the $ 26 billion of FCNR-B (Foreign Currency Non-Repatriable) swaps.
  • The government and the RBI are expected to launch another bulk forex scheme to further enhance foreign exchange reserves.
  • The government could raise investment limit in government securities by another $ 5 billion to $ 30 billion, replacing the $ 5 billion reserved for sovereign wealth funds and others, within the overall FII debt investment limit of $ 81 billion to increase reserves.
  • It may also exercise the option of listing government securities in a growing market bond index to raise $ 20-25 billion from benchmark funds that track that index.

The government could also issue sovereign bonds or quasi sovereigns to raise $ 5-8 billion capitalizing on the Modi government’s solid political mandate, to bolster the reserves.

 

S S Mundra assumes office as RBI deputy governor

S S Mundra (60) has taken charge as deputy governor Reserve Bank of India. As a deputy governor of the central bank, he will be responsible for banking supervision, currency management, financial stability and rural credit. The government has notified his appointment for a period of 3 years.

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.

Now, RBI has four deputy governors– H R Khan, Urijit Patel, R Gandhi and S S Mundra.  

RBI is planning to have one more deputy governor, but this will require a change in the rules of RBI. Till the time the changes in rules are made, the RBI has suggested the Government to appoint an Officer on Special Duty or Chief Operating Officer (COO) with the rank of a deputy governor. Government is yet to take a call on any of these proposals put forward by the RBI. Normally, an RBI deputy governor can be appointed for 5 years or till the age of 62, whichever is earlier. To be eligible for the post, a candidate needs to be less than 60 years of age while assuming charge.

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