Page 10 - Banking Finance November 2024

RBI CORNER

Norms for new capital in- However, these guidelines did not (MPC) of the Reserve Bank of India
cover the newly-enabled capital-re- (RBI) chose to leave the repo rate, the
struments for Urban Co- lated provisions, the RBI said in a state- rate at which it lends to commercial
operative Banks on anvil ment on developmental and regulatory banks, unchanged at 6.5 per cent. This
policies accompanying the monetary is the tenth consecutive time the rate
The norms for new capital-raising in-
struments, such as issuance of shares policy review. has remained unchanged.
at a premium for urban cooperative Prabhat Chaturvedi, chief executive of- RBI shifted its stance to neutral from
banks (UCBs), are expected to provide ficer (CEO), National Urban Co-opera- 'withdrawal of accommodation', signal-
flexibility in raising resources and sup- tive Finance and Development Corpora- ling the central bank's readiness to
port growth of the sector. These norms tion (NUCFDC), said that focusing on ease monetary policy if inflation con-
will be outlined in the Reserve Bank of capital-raising options is vital for stabil- tinues its downward trajectory.
India's (RBI's) discussion paper. ity and growth of these institutions.
RBI Governor Shaktikanta Das stated RBI keeps repo rate un- RBI: Looking through the
that to provide more flexibility and av-
enues for UCBs to raise capital, the dis- changed liquidity management tea
cussion paper will be issued for feedback The RBI's deciding to maintain the leaves
and suggestions from stakeholders. repo rate at 6.5 per cent for the fourth The October RBI policy might have
The RBI said the initial set of guidelines consecutive time this fiscal year and surprised the market with its dovish
on the issue and regulation of share the tenth time overall. The RBI main- tone and stance change to neutral, but
capital and securities for UCBs were tained status quo despite the US Fed- the change in RBI policy was already
issued in 2022 to ensure alignment eral Reserve lowering the benchmark visible in its liquidity management. In-
rates by 50 basis points last month.
with the Banking Regulation (Amend- deed, since July 2024, interbank liquid-
ment) Act, 2020. The Monetary Policy Committee ity surplus has averaged ~INR1.2tn
(0.5% of NDTL or deposits). The last
RBI finds irregular practices in grant of gold loans time similar levels of surplus liquidity
The Reserve Bank of India (RBI) asked gold loan financiers to review poli- were seen was in June to August last
cies, processes and practices while offering such loans. The central bank's year and the RBI responded by impos-
direction came after it found major deficiencies in loans offered by super- ing incremental ICRR of 10%.
vised entities (SEs) against pledge of gold ornaments and jewellery. In contrast during the current phase of
"All SEs are advised to comprehensively review their policies, processes and liquidity surplus, RBI has refrained
practices on gold loans to identify gaps and initiate appropriate remedial from any strong liquidity absorbing
measures in a time bound manner," RBI said in a notification. measures. Persisting with VRRRs and
Some irregularities included shortcomings in use of third parties for sourc- VRRs to keep the weighted average
ing and appraisal of loans; valuation of gold without the presence of the call rate near the repo rate. The
customer; inadequate due diligence and lack of end use monitoring of gold TREPS rate where maximum volume of
loans; and lack of transparency during auction of gold ornaments and transactions take place, has been av-
jewellery on default by the customer. The RBI in its review also found weak- eraging below the repo rate over the
nesses in monitoring of LTV (loan-to-value ratio) and incorrect application last few months.
of risk-weights.
The rise in liquidity surplus has been
The RBI said that in gold loans granted through partnership with Fintech led by higher general government ex-
entities/ business correspondents (BC), practices such as valuation of gold penditure post the final budget. This is
being carried out in the absence of customer, credit appraisal and valua- reflected by the reduction in general
tion done by the BC itself, delayed and insecure mode of transportation of government cash surplus from peak
gold to the branch and KYC (Know Your Customer) compliance being done levels of INR5.1tn May 24th 2024 to
through Fintechs.
INR1.8tn surplus as of Oct 4th 2024.

BANKING FINANCE | NOVEMBER | 2024 | 9