The policy fixes the potential trouble spots in the banking system
For the first time in two years, the Reserve Bank of India (RBI) has brought direct cheers to many a common man on the streets.
The cut in the short-term repo rate (the rate at which the RBI lends money to commercial banks) by 50 basis points to 8 per cent from 8.50 per cent has set the stage for a drop in interest rates on home and car loans. Banks have already gone into a huddle mode to work out their rate cut strategy.
While borrowers can have a sigh of relief, senior citizens who rely on interest income from savings deposits for their living may feel a sense of let down. Not long ago, banks vied with one another to hike short-term deposit rates. If the benefit of the RBI action has to percolate down, the deposit rates need to be aligned with the new reality. Re-adjustment of deposit rates will have to happen sooner than later if banks were to heed the RBI signal and cut the lending rates. Though the RBI has punctuated the rate cut with clear cut warning on the persistent ‘upside risk' to the economy, the move is sure to perk up the sentiment all around.
The Monetary Policy Statement of 2012-13 also has some significant common man-centric initiatives. The high interest rate regime has seen home loan takers shelling out more every month. As though this isn't enough, banks put hefty penal charge for pre-closure of loans. The apex bank has now said that there cannot be any foreclosure or pre-payment penalties on home loans extended on a floating interest rate basis. A penal charge on pre-closure of a floating rate loan is simply unexplainable.
At a time when personal banking has gone mostly impersonal, thanks to the invasion of technology, the RBI has asked banks to offer a “basic savings deposit account” with certain minimum common facilities. This should be done to all customers without insisting on the need for a minimum balance. The RBI has also advised banks to initiate steps to allot unique customer identification code number to all customers.
These three indeed are direct-impact initiatives and go a long way in beefing up customer confidence in the banking system.
Gold loans under lens
The surge in gold loan continues to worry the monetary managers. The RBI recently put restriction on non-banking finance companies (NBFCS) by insisting that their loan-to-value ratio cannot be more than 60 per cent. They move was seen as bid to reign in unbridled growth in gold loan. Gold loan companies such as Manappuram Finance, Muthoot Finance and the like have come under the watchful eyes of the apex bank. Reiterating its concern over significant increase in gold loans by NBFCs in the recent period, the RBI has asked banks to pare their regulatory exposure to a single NBFC (having gold loans to the extent of 50 per cent or more of its total financial assets) to 7 per cent from the existing 10 per cent of their capital funds. Also, the apex bank wants banks to have an internal sub-limit on their aggregate exposure to such aforesaid NBFCs taken together.
Working group on gold
Significantly enough, the RBI has decided to constitute a working group to do a detailed study of gold demand, trends in gold prices and lending by NBFCs against gold. Simultaneously, it has announced its intention to come out with a draft guideline on the regulatory framework for NBFCs by June-end on the recommendations of the Usha Thorat Working Group.
More than the rate cut, the latest policy statement of the RBI is marked for its no-nonsense approach to fix the potential trouble spots in the banking system.