Page 8 - Banking Finance July 2019

RBI CORNER

Repo rate reduced by 25 RBI to issue 'on-tap' licences for small finance banks
The RBI has recently stated that it will start accepting licence applications for
bps to 5.75% by RBI
small finance banks throughout the year, with draft guide-
In a bid to push economic activity,
lines for such “on-tap” licencing likely by end of August.
RBI has unani-
It has said that small finance banks have achieved their
mously decided
priority sector targets as revealed by a review of their
to reduce the
performance and thus attained their mandate for fur-
policy repo rate
thering financial inclusion. “Hence, there is a case for more players to be in-
by 25 basis
cluded to enhance access to banking facilities to the small borrowers and to
points and
encourage competition," it said.
change the mon-
etary policy stance from ‘neutral’ to The regulator’s guidelines for licencing of payments banks and small finance
‘accommodative’. The six-member banks in the private sector stated that RBI would consider on-tap licencing of
Monetary Policy Committee of RBI these banks, after gaining experience in dealing with them. However, in case of
has decided on a 25 basis points rate payment banks, RBI stated that more time was required to review their perfor-
cut for the third time, at the back- mance before considering the licencing of these banks to be put on tap.
drop of benign retail inflation.
As much as 10 applicants have received in-principal approval in September 2015, in
Following the MPC decision, the repo order to set up small finance banks. Further, in August 2016, it smothered the way
rate now stands at 5.75% against 6% for universal bank licences to be available on tap. The final set of guidelines has also
earlier. RBI previously had an ‘ac- been released for eligible entities in order to apply for licences as and when they
commodative’ monetary policy chose, while keeping the roads closed to large business houses. The eligibility was
stance during the January 2015 to fulfilled only by NBFCs, qualified individuals and some private companies.
early February 2017
period.
RBI Dy Guv resigns before term ends
RBI Governor Shaktikanta Das
Viral Acharya, Deputy Governor of RBI, has recently resigned from his post six
stated, “The unanimous vote reflects
months before his term ends. Inside sources have given con-
the resolve of the MPC to act deci-
firmation regarding the Acharya’s resignation, while RBI is
sively and to act in time…The RBI will
yet to issue an official statement confirming the same. As
ensure that adequate liquidity is
per the information from the sources, he will be returning
available in the system for all pro-
to New York University Stern School of Business (NYU Stern)
ductive purposes. An accommodative
in August instead of February 2020.
stance basically means that rate in-
According to reports, Acharya had resigned a few weeks be-
crease is off the table.”
fore the last meeting of RBI's Monetary Policy Committee (MPC). Acharya had
The MPC noted, “Growth impulses
earlier raised concern over the importance of RBI's independence in October
have weakened significantly as re-
2018. At the time, the RBI and government had been engaged in a cold tussle
flected in a further widening of the
over various issues, especially on decisions pertaining to use of RBI's excess re-
output gap compared to the April
serves.
2019 policy.” A sharp slowdown in in-
Acharya's resignation can indicate some differences still continue to exist be-
vestment activity along with a con-
tween RBI and government in terms of decision making.
tinuing moderation in private con-
sumption growth is a matter of Acharya continued to strongly voice his differences with new RBI governor
concern,”the committee further Shkatikanta Das over the issues of slow growth and inflation, even after Urjit
said. The headline inflation trajec- Patel resigned. He had also voted for a pause in April MPC but a decision was
tory remains below the target man- taken to further cut key lending rates.
dated to the MPC even after taking
RBI director Satish Marathe said, "I heard that Viral Acharya has resigned.
into account the expected transmis-
Media should read deep into it or speculate, the academic season starts now so
sion of the past two policy rate cuts.
he might have opted to go before his term gets over."
8 | 2019 | JULY | BANKING FINANCE