A concerted effort by all key financial sector regulators, policy makers and other intermediaries to proactively alleviate the liquidity situation and keep India Inc on the growth path is under way. This week promises to be action-packed, with many policy measures expected to be unleashed.
After the Reserve Bank of India had announced a slew of measures to improve the liquidity situation, the Indian Banks? Association (IBA) has said that it would intermediate between the mutual fund industry and banks to ensure smooth flow of funds to the industry, which is facing redemption pressures.
?We had a word with A P Kurian, chairman of the Association of Mutual Funds In India (Amfi), where we understood that mutual funds are facing a problem in accessing funds from banks. Hence, if any mutual fund has a problem, it can approach the IBA, and we, in turn, would talk to banks in this regard,? said K Ramakrishnan, chief executive of IBA, at a press meet here on Sunday. He added that the redemption pressures on mutual fund would now ease, and this is expected to support the stock market where huge selling was witnessed last week.
?We got feedback from mutual funds that some of them were not getting access to bank funds. However, with the new RBI measures, mutual funds can now approach banks freely to meet their funding requirements and the fear of redemption pressure should be over,? reassured MV Nair, CMD of Union Bank of India.
And these are just a part of the several other measures taken to ease the pain for funds and non-banking financial companies (NBFCs). RBI on Saturday announced liquidity support through refinance facility of Rs 40,000 crore to banks and increased the quantum of fixed rate repo facility from 0.5% of NDTL (net demand and time liabilities) to 1.50% of NDTL to enable banks to meet funding requirements of NBFCs and mutual funds.
A fortnight ago, the central bank decided to conduct a special 14-day repo auction, at which it would infuse Rs 20,000 crore, to meet the liquidity requirements of mutual funds. This now essentially means NBFCs and MFs can borrow funds up to Rs 60,000 crore. However, of the Rs 20,000 crore, Rs 8,065 crore has already been used. For NBFCs, the central bank had allowed them to borrow overseas up to 50% of their net owned funds or $10 million, whichever was higher.
Prime Minister Manmohan Singh will also get into the thick of things as he meets key India Inc. leaders in New Delhi on Monday to discuss their concerns over growth and liquidity. Head honchos like Ratan Tata, Anand Mahindra, Mukesh Ambani, Anil Ambani, KP Singh, Sunil Bharti Mittal and Deepak Parikh are expected to discuss these issues with the Prime Minister. Presidents of the three apex chambers?Assocham, CII and FICCI?Sajjan Jindal, KV Kamath and Rajeev Chandrasekhar are also expected to be in attendance.
And right after that, on Tuesday, finance minister Palaniappan Chidambaram, will be meeting with the chiefs of the public sector banks (PSBs) in New Delhi to take stock of the latest developments in the banking sector. Finance minister has said that he would ask PSU banks to consider lowering lending rates. In an exclusive interview to a news agency, the minister said he would take up the issue of interest rate cut ?forward? during the meeting.
Meanwhile, as a reaction to these strong liquidity-enhancing moves, banks are now looking at slashing their lending and deposit rates. ?Our asset and liability committee (Alco) will be meeting up next week to study the impact of the rate cut. However, we are looking at slashing the deposit and lending rates,? confirmed MD Mallya, CMD of Bank of Baroda.
Already , IDBI Bank slashed its home and educational loan rates by 0.5% with immediate effect. ?The rate cut will be applicable to both the existing and new customers,? said the bank in a press statement.
Following the revision, the bank will now charge an interest rate of 11% as against the earlier 11.5%, for its customers. Meanwhile, the margin on housing loans has been enhanced from 15% to 20% for loans up to Rs 30 lakh and to 25% for loans over Rs 30 lakh, the bank said.
Union Bank of India too plans to take a call on its lending and deposit rates this week. ?There may be a case for reducing benchmark prime lending rate (BPLR). Thus, the pressure to reduce deposits at a high cost will reduce. Interest rates will now move southwards,? said Nair.
Talking about the credit growth, which has been high at 29%, Nair said the bank is witnessing a high demand for credit on home loans and vehicle loans. ?Most of the credit is flowing into these sectors, along with lending to the oil and fertilizer sector. We have been focusing on the home loan front, as we see an opportunity there,?said Nair.
