Page 10 - Banking Finance December 2020

RBI CORNER

Reserve Bank

News

Large NBFCs can become (GDP) in the first quarter of 2020-21, technology (IT) stocks powered the
up from 7.9 per cent in Q1 and 10 per surge. The benchmark index (Sensex)
banks: RBI cent in the fourth quarter of 2019-20. crossed a seven-month high in the first

The Reserve Bank of India has said that "The sharp increase is counter-seasonal week of October, and rallied further in
there is a case for systemically impor- ensuing days, recouping 52 per cent of
and may be attributed to the Covid-19-
tant non-banking finance companies the losses suffered on March 23," it
led reduction in discretionary expendi-
(NBFCs) beyond a certain size to convert said. In August, RBI Governor
ture or the associated forced saving and
into banks and subject them to the same the surge in precautionary saving despite Shaktikanta Das had said there was a
prudent regulatory framework. This clear disconnect between the sharp
stagnant/reduced income," the Reserve
arrangement will enable a regulation- surge in stock markets and the state
Bank of India (RBI) said, explaining the
light structure to continue for most reasons for the rise in savings. of the real economy, as surplus global
NBFCs that gives them the flexibility to liquidity was driving up asset prices
serve the last-mile consumers. The yawning gap between credit ex- across the world.
tended and deposits mobilised during
"The spill-over of risks from a system-
Q1FY21 contributed to the spike in Reserve Bank proposes to
atically important NBFC capable of household financial savings as the fi-
transmitting perceptible impact on fi- merge LVR with DBS Bank
nancial instruments relating to banks
nancial stability must be dealt with in
continue to dominate the household India
a proportionate manner. So, NBFCs financial assets and liabilities, it said.
with significant externalities and which Finance Ministry approved the merger
Significantly, the RBI report also men-
contribute substantially to systemic of capital-starved Lakshmi Vilas Bank
tioned the "irrational exuberance" in
risks must be identified and subjected the equity market, driven by monetary (LVB) with DBS Bank India. The Reserve
to a higher degree of regulation," said Bank of India on 17 November pro-
and fiscal policy measures undertaken
RBI deputy governor M Rajeshwar posed the merger of the 94-year-old
in the context of the pandemic.
Rao.. lender with the Indian arm of
"Irrational exuberance in domestic Singapore's DBS Bank. As part of the
Household financial sav- equity markets extended into October amalgamation, DBIL will infuse fresh
2020, driven by monetary and fiscal capital of Rs. 2,500 crore into LVB.
ings rise to 21.4% of GDP: policy measures undertaken in the con- The central bank on 17 November

RBI report text of the pandemic as well as better placed Lakshmi Vilas Bank under one-
than expected corporate earnings in
RBI preliminary estimates show a jump month moratorium, superseded its
Q2 of 2020-21, it said.
in household financial savings to 21.4 board and capped withdrawals at Rs.
per cent of the gross domestic product "Banking, finance and information 25,000 per depositor. "With the

10 | 2020 | DECEMBER | BANKING FINANCE