Page 9 - Banking Finance September 2019

RBI CORNER

RBI slams banks for poor RBI to buy more gold, joins international peers
compliance Central banks around the world are readjusting their foreign exchange reserve
mix in favour of gold for safety and strategic rea-
M K Jain, Deputy Governor of RBI, sons after US-China trade negotiations drag the
slammed world to uncertain territory. Central banks are find-
banks for
ing reassurance in the gold insurance against un-
poor compli-
certainties.
ance with
regulations, China and Russia have been the most aggressive
and pointed out that high value buyers so far, but the RBI is now the tenth-largest
frauds and fines are a result of their gold reserve holder in the world, as of June, according to the International
lackadaisical attitude on this. Monetary Fund (IMF).

He said in some cases, the lack of In 2009, India bought 200 tonnes of gold from the IMF. For seven years after
compliance has been “recurring”, that the RBI did not buy any gold. But in 2017, it bought 0.3 tonnes, in 2018
42.3 tonnes, and in 2019 so far, a further 12.1 tonnes. This took the gold hold-
wherein banks have also ignored
RBI’s instructions to commit the ing to 612.6 tonnes.
same mistakes time and again.
NBFCs should not impose loan foreclosure penalties:
“Despite the benefits offered for
good compliance culture and the RBI to NBFCs
cost of poor conduct, the compliance In a recent move, RBI has barred non-banking finance companies from impos-
culture at banks is far from satisfac- ing penalties on prepayment or foreclosure charges
tory,” Jain said speaking at the an- from individual borrowers.
nual industry conference Fibac. "NBFCs shall not charge foreclosure charges/pre- pay-
ment penalties on any floating rate term loans sanc-
“During the process of supervisions,
tioned for purposes other than business to individual
the Reserve Bank has observed vari-
ous lacunae in the compliance cul- borrowers, with or without coobligants," RBI said in a
ture. Some weaknesses and irregu- notification, without specifying from when the new rules will be effective.
larities observed have been recurring The RBI has also said the relevant rules governing the same have been updated
in spite of the commitments to the to reflect the change. Foreclosure charges are part of the fee income for any
Reserve Bank,” he added. Jain said he lender and add to its bottom line. Both deposit-taking and non- deposit-taking
expects banks to make “serious ef- NBFCs that are considered systemically important ones are covered under these
forts” on the compliance side, and directions. Earlier in 2014, the RBI had barred commercial banks from charging
look at the aspect beyond a regula- penalties from individual borrowers with mortgage loans. But banks are free to
tory mandate. charge same on non-secured loans like personal loans.

RBI reduces repo rate by 35 bps to 5.4%
RBI launches 'Utkarsh
In order to boost slowing economic growth the RBI has reduced benchmark
2022' interest rate by an irregular 35 basis points (bps). The RBI’s six-member rate-
With an aim to review its organiza- setting panel cut the repurchase rate to 5.4%, the lowest in almost a decade
tional structure, the Reserve Bank of and more than the 25bps cut expected by most economists. It also decided to
India (RBI) has introduced its me- retain the monetary policy’s current accommodative stance.
dium-term strategy framework RBI Governor Shaktikanta Das said that the monetary policy committee (MPC)
called “Utkarsh 2022”. was of the view that the “standard 25 basis point (cut) might prove to be inad-
The framework aims to achieve ex- equate in view of the evolving global and domestic macroeconomic develop-
cellence in the performance of RBI’s ments. On the other hand, reducing the rate by, say, 50 basis points might be
mandates and strengthen the trust
excessive, especially after taking into account the actions already undertaken".
of citizens and other institutions.
Reducing the rate by 35bps was, therefore, viewed as balanced, Das said.

BANKING FINANCE | SEPTEMBER | 2019 | 9