Here is today’s important banking news to keep you updated and help you prepare for IBPS and other bank exams:
Important Banking News: Raghuram Rajan Holds Repo Rate; Says Budget Key to More Easing
- Reserve Bank Governor Raghuram Rajan held repo rate steady at 6.75 per cent on Tuesday, as widely expected, opting to wait until after the Budget is presented on February 29 to decide on whether to cut interest rates further.
- “Structural reforms in the forthcoming Union Budget that boost growth while controlling spending will create more space for monetary policy to support growth, while also ensuring that inflation remains on the projected path of 5 per cent by the end of 2016-17,” the RBI said in a statement.
- Dr Rajan was expected to keep the repo rate unchanged because of the rising trend seen in food inflation. The RBI wants annual inflation at 5 per cent by March 2017 but December was the fifth straight month when inflation ticked up.
- “The Reserve Bank continues to be accommodative even as it leaves the policy rate unchanged in this review, while awaiting further data on the development of inflation,” the RBI said.
- There are fears that food prices could rise further because of delays to the sowing of the rabi (winter) crop this season.
Important Banking News: Rajan Sticks to His Guns on Cleaning Up Banks’ Books
- With lenders staring at huge loan losses on a review of top 150 defaulting accounts by Reserve Bank of India, its Governor Raghuram Rajan on Tuesday said the exercise is a part of a proactive clean-up process that will strengthen the system to serve the economy’s needs in the future.
- “We are now working with the government and the banks to ensure that stressed assets are recognised on a proactive basis and banks’ balance sheets represent a true and fair picture and are adequately provisioned,” Rajan told reporters during the customary post-policy interaction.
- With fears of the clean-up process resulting in an erosion of bank profits, Rajan stressed on the benefits over a medium-term.
- “I believe this process will create the basis for strong growth as banks can then focus not on managing legacy assets but on lending to new ones. I don’t think this will deter from profitability in the medium-term as well as growth,” he said.
- Rajan further said the RBI has not told banks what to do, but has only “discussed” a range of accounts and given them some time to figure out the way forward on them.
- According to reports, RBI has identified a list of 150 top stressed accounts at the systemic level which it feels are stressed and asked banks to treat them as non-performing assets by providing adequate amount of money.
- Analysts peg the total provisioning as a result of this massive clean-up exercise will be around Rs 70,000 crore.
- Leading private sector lenders, Axis Bank and ICICI Bank, who have announced their December quarter earnings, have reported a huge spike in their bad loans and tepid profit growth as the exercise which has to be carried out by March.
- Meanwhile, the central bank clarified it has given out a formal list of top 150 defaulting accounts to banks with deputy governor SS Mundra, saying, “the banks are encouraged to have a proactive and conservative approach on NPAs” as part of the clean-up process.
- He reiterated the finance minister has indicated to help the public sector lenders’ capital needs and that private sector lenders will not need any regulatory capital.
- Rajan said the ability to be seen at par with the system in recognising stress has also helped banks to come forward in reporting the issues.
- “A number of banks have welcomed the ability to clean up their balance sheets, knowing that others are doing that also and they will not be seen in isolation,” he said.
- The RBI has undertaken at least two meetings with the chief executives of banks in the recent past to ensure that the stress is recognised.