Page 11 - Banking Finance January 2022

RBI CORNER

decentralised virtual currencies and Borrowers moving to- ment, the bank said in a stock ex-
crypto assets, which are not issued by change filing. Both the companies
the state and lack the 'legal tender' wards fixed rate loans: RBI caused fraud in the nature of 'diversion
status. CBDCs enable the user to con- chief of funds'.
duct both domestic and cross border There is a trend among borrowers to In the case of Capricorn Food Products,
transactions which do not require a move towards fixed rate loans even as the amount involved is of Rs 22.36
third party or a bank. "Introduction of the Reserve Bank of India (RBI) moves crore, while in the case of Raj Events
CBDC has the potential to provide sig- towards rebalancing liquidity, accord- and Entertainment, the fraud amount
nificant benefits, such as reduced de- ing to Governor Shaktikanta Das. involved is of Rs 10.97 crore. Provision
pendency on cash, higher senior age held against Capricorn Food as of Sep-
due to lower transaction costs, re- "I think most of the banks till now have tember 30, 2021 stood at Rs 8.54 crore
duced settlement risk. Introduction of been giving floating interest rate loans. and of Rs 1.65 crore in the case of Raj
CBDC would also possibly lead to a Now, there is a trend of people are Events and Entertainment, the bank
more robust, efficient, trusted, regu- moving towards fixed rate loans," said said.
lated and legal tender-based pay- Das in reply to a question posed by
ments option. There are also associ- State Bank of India (SBI) Chairman Talk of reverse repo rate
ated risks which need to be carefully Dinesh Kumar Khara at the SBI Bank-
ing and Economics Conclave hike is premature
evaluated against the potential ben-
efits," Chaudhary said. Asking banks to be investment-ready The Reserve Bank of India (RBI) may
when the investment cycle picks up, deflate the hype around reverse repo
RBI mulls bond forwards, the Governor emphasised that giving hike in the monetary policy by explain-
loans at floating or fixed interest rate ing the virtues of using reverse repo
engages with life insurers is a commercial judgment of banks, and change as a pure liquidity tool and not
The Reserve Bank of India (RBI) is un- typically the RBI does not like to enter a rate tool, according to State Bank of
derstood to be weighing a proposal to into those areas. India's economic research report
allow 'bond forwards' --- a deal under "Irrespective of the fact that the liquid- "Ecowrap".
which a financial institution can buy a ity is in surplus, I think risk pricing of
specific government security for a pre- the various loans being extended by It emphasised that delaying
agreed price at a future date. normalisation measures is prudent in
the banks has to be done diligently by the current situation which would also
A forward market that would result in them. give time for economic recovery to
actual delivery and purchase of sover- strengthen further.
"The mere fact that there is excessive
eign papers would be lapped up by life liquidity should not lead to any
insurance companies who would find it mispricing of loans because this exces- "We believe the talks of a reverse repo
easier and less risky while planning sive liquidity is not going to be a per- rate hike in the Monetary Policy Com-
their investments over the years. manent feature," said Das. mittee (MPC) meeting may be prema-
ture as the RBI has been largely able
"RBI and the clearing corporation had to narrow the corridor without the
sounded out some of the insurance Indian Bank reports fraud noise of rate hikes and ensuing market
companies on the subject. Most are of over Rs 33cr to RBI cacophony," said Soumya Kanti Ghosh,
interested. Besides helping insurers to Group Chief Economic Advisor, SBI.
lower the risk, a market for bond for- Indian Bank has reported a fraud of
wards would deepen the fixed income more than Rs 33 crore to the Reserve Reverse repo rate is the interest rate
market and more importantly partly Bank, involving two of its accounts that that banks earn for parking short-term
support the financing of fiscal deficit," turned into NPAs. surplus liquidity with RBI.
a senior industry source told ET. CCIL, Two non-performing loan accounts, Section 45Z (3) of the amended RBI Act
or the Clearing Corporation, provides Raj Events and Entertainment and of 2016 clearly states that, "The Mon-
clearing and settlement in money, gov- Capricorn Food Products India, have etary Policy Committee shall deter-
ernment bonds, foreign exchange and been declared as fraud and reported mine the policy rate required to
derivatives. to the RBI as per regulatory require- achieve the inflation target". T

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