Latest News Today – Banks’ Buffers Strong Enough To Withstand Future Shocks,

RBI said that banks have strong enough capital and liquidity buffers to withstand future shocks

Banks have strong enough capital and liquidity buffers to withstand future shocks as the impact of the pandemic on their balance sheets has not been as severe as projected earlier, a report from the Reserve Bank of India (RBI) said.

The Financial Stability Report is published bi-annually by the RBI on behalf of the Financial Stability and Development Council, an umbrella group of regulators which gives an overview of the health of India’s financial system.

The report said banks’ gross non-performing assets could rise to 9.8 per cent of total assets by March 2022 from around 7.48 per cent as of the end of March this year under a baseline scenario and to 11.22 per cent under a severe stress scenario.

The projections are much less pessimistic than the report released in January, in which the RBI had said that bad loans could double in a severely stressed scenario.

“Capital and liquidity buffers are reasonably resilient to withstand future shocks, as the stress tests presented in this report demonstrate,” RBI Governor Shaktikanta Das, wrote in the foreword to the report.

He also said there are new risks which have emerged on the horizon, including potential future waves of the coronavirus pandemic, international commodity prices and inflationary pressures and rising instances of data breaches and cyber attacks.

The report showed that Indian banks, which have been carrying a significant bad loan burden for several years, managed to bring down bad loans to 7.5 per cent in March 2021, compared with 8.5 per cent in March 2020 despite the pandemic-led challenges.

“Unprecedented policy support has contained the impairment of balance sheets of banks in India despite the dent in economic activity brought on by waves of the pandemic,” the report said. Lenders also have sufficient capital even under a stress scenario, it stated.

The RBI did also say that downside risks remained, especially from loans given to small and medium enterprises. Subdued loan growth can also adversely impact net interest income levels of banks, it added.

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Latest News Today – Reserve Bank Of India (RBI) Announces G-SAP 2.0 Of Rs

RBI Monetary Policy 2021: Central bank kept interest rates steady to maintain status quo

The Reserve Bank of India (RBI), in its bi-monthly Monetary Policy Committee (MPC) Statement, said that another round of the Government Securities Acquisition Programme (G-SAP 1.0) worth Rs 40,000 crore will be conducted on June 17. Out of this, Rs 10,000 crore will constitute the purchase of state development loans or SDLs. RBI Governor Shaktikanta Das said that the central bank does not expect the market to respond appropriately to the announcement of G-SAP 2.0. (Also Read: RBI Monetary Policy Highlights: Lending Rates Unchanged, Growth Projected At 9.5% )

The specific dates and securities under the G-SAP 2.0 operations will be announced separately. The Reserve Bank planned a G-SAP of Rs 1 lakh crore for the first quarter of the current fiscal.

In its first bi-monthly monetary policy committee for fiscal 2021-22 held in April, the Reserve Bank had announced the secondary market G-SAP 1.0 scheme. As part of the program, the central bank committed upfront to a specific amount of open market purchases of government securities to ensure a stable and orderly evolution of the yield curve amid comfortable liquidity conditions.

”The announcement of G-SAP 2.0 to the tune of Rs. 1.2 lakh crores will ensure adequate liquidity in the system. Upward revision of inflation rate will raise bond yields marginally in the short run,” said Dr. Rajeev Singh, Director General, Indian Chamber of Commerce (ICC).

Shaktikanta Das said in his statement that during the current year so far, the RBI has undertaken regular OMOs and injected additional liquidity to the tune of Rs 36,545 crore, up to May 31, which is in addition to Rs 60,000 crore under the G-SAP 1.0 scheme.

RBI Governor added that a purchase and sale auction under the operation twist was conducted on May 6, to facilitate the easy evolution of the yield curve. Meanwhile, the redemption of government securities worth around Rs 52,000 crore in the last week of May fully neutralised the cash reserve ratio (CRR) restoration.

”As part of its objective to ensure adequate liquidity, RBI has continued with its GSAP 1.0 programme for Q1FY22 with a scheduled Gsec purchase of Rs 40,000 crore in June and importantly, taking it forward with GSAP 2.0 with the planned acquisition of another Rs 1.2 lakh crore in Q2FY22,” said said Mr Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research.

Along with the use of other tools such as OMOs and Operation Twist, these announcements are a clear message to the market participants that RBI would like to provide necessary support and facilitate a slightly downward bias on the bond yields,” he added.

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Latest News Today – RBI May Continue G-Sap Auctions To Keep Yields In Check,

RBI MPC Meet Preview: According to economists, the repo rate is likely to be unchanged

The Reserve Bank of India (RBI) Governor Shaktikanata Das-led Monetary Policy Committee (MPC) began its three-day deliberations on Wednesday, June 2, as economists and rating agencies expect the maintenance of status quo on benchmark rates, amid the severity of the second wave of the COVID-19 pandemic. According to credit rating agency Brickwork Ratings, the central bank’s rate-setting committee is likely to maintain the status quo on lending rates in view of optimistic growth in the March quarter. (Also Read: Reserve Bank Of India Expected To Keep Rates Steady, May Take Take Liquidity Measures )

Expectations from RBI Monetary Policy Committee 

Dr M Govinda Rao, Chief Economic Advisor of Brickwork Ratings said that the Reserve Bank is likely to continue with G-sap auctions in order to maintain the yields on government securities in check. He expects that the inflation rate may remain close to the upper bound target of six per cent in the near term. The central bank’s committee may continue to pause on the interest rates by maintaining the accommodative stance to support growth as long as inflation remains within the target range of the monetary policy framework, he explained. 

”The better-than-expected GDP numbers provide much-needed comfort to the MPC on the growth outlook. With the imposition of partial lockdown-like restrictions to contain the virus spread in several parts of the country, the downside risk on growth recovery has intensified….Considering the risk of inflation emanating from the rising commodity prices and input costs, Brickwork Rating expects the RBI MPC to adopt a cautious approach and hold the repo rate at four per cent,” said Dr Rao.

Economic Growth Outlook

  • According to the credit rating agency, the Reserve Bank is unlikely to undertake the heavy lifting that it did last year by expanding liquidity, for the fear of other adverse macroeconomic consequences. 
  • The estimates of the gross domestic product (GDP) released by the government on May 31, 2021, are more optimistic than what the market had expected. In the financial year 2020-21, the economy contracted by 7.3 per cent, and the agriculture sector witnessed a growth of 3.6 per cent, while the services and industry sectors contracted by 8.4 per cent and seven per cent, respectively.
  • The economic growth of 1.6 per cent recorded in the January-March quarter of the financial year 2020-21 brings optimism on the recovery front, however, the growth in the fourth quarter was largely due to low base effect. During the March quarter, all major sectors registered growth, including the manufacturing and construction sectors that picked up a faster pace in the quarter. 

Inflation Rates

Under the current situation, maintaining retail inflation at four per cent with a margin of two per cent on either side may pose challenges, according to Brickwork Ratings. The central bank will have to be vigilant as the current ease in retail inflation is driven mostly due to a favourable base and weaker demand.

The Reserve Bank tracks the retail inflation – or the rate of increase in consumer prices as determined by the consumer price index (CPI). Meanwhile, the RBI in its bi-monthly monetary policy review on April 7, 2021, targeted the retail inflation at 5.2 per cent in the first half of the current fiscal 2021-22, and mandated to keep it within the range of two per cent – six per cent band with four per cent as a medium-term target. 

In April 2021, retail inflation eased to a three-month low of 4.29 per cent on the account of easing of food prices such as vegetables and cereals, according to government data. 

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Latest News Today – Sensex Gains Over 200 Points, Nifty Above 14,600

The domestic stock markets have opened in the positive, post the 1 per cent fall in the previous session. At 9:20 am, the BSE Sensex was trading at 48,503.21, higher by 253.56 points or 0.52 per cent and the NSE Nifty was at 14,573.50, up 71.35 points or 0.51 per cent. The broader markets are outperforming their largecap peers, with the BSE Midcap index gaining 0.7 per and BSE Smallcap index adding 0.9 per cent.

Meanwhile, Reserve Bank of India said Governor Shaktikanta Das will make an unscheduled speech at 10:00 am, as the second wave of coronavirus continues to devastate the country.

Asian shares risked falling for a fourth straight session on Wednesday as sentiment took a knock from a selloff in large cap Wall Street tech darlings, combined with talk of rising U.S. interest rates.

Holidays in Japan, China and South Korea limited the early reaction, leaving MSCI’s broadest index of Asia-Pacific shares outside Japan dithering either side of flat. Japan’s Nikkei was shut, but futures traded down at 28,735 compared to the last cash close of 28,812.

Overnight, the Nasdaq fell more than 2 per cent on Tuesday as steep declines in megacap growth stocks pushed Wall Street below record trading levels, with investors seeking shelter in more defensive parts of the market. The Dow Jones fell 0.69 per cent, S&P 500 was down 1.34 per cent and Nasdaq Composite shed 2.73 per cent.

On the earnings front, Tata Steel, Adani Enterprises and Adani Green will report results for the quarter ended March 2021.

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Latest News Today – Reserve Bank Of India (RBI) Policy Committee Starts

The policy repo rate is currently 4 per cent and reverse repo rate is 3.35 per cent

RBI Governor Shaktikanta Das-headed rate-setting panel MPC started its three-day deliberation on the next monetary policy on Monday amid sudden surge in COVID-19 cases and the government’s recent mandate asking the central bank to keep retail inflation around 4 per cent. The Reserve Bank will announce the resolution of the Monetary Policy Committee (MPC) on April 7.

Experts are of the view that the Reserve Bank will maintain status quo on policy rates at its first bi-monthly monetary policy review for the current fiscal. It is also likely to maintain an accommodative policy stance.

The policy repo rate or the short-term lending rate is currently at 4 per cent, and the reverse repo rate is 3.35 per cent.

Last month, the government had asked the Reserve Bank to maintain retail inflation at 4 per cent, with a margin of 2 per cent on either side for another five-year period ending March 2026.

M Govinda Rao Chief Economic Advisor, Brickwork Ratings (BWR) said, given the rise in the spread of coronavirus infections and the imposition of fresh restrictions to contain the virus spread in the major parts of the country, RBI is likely to continue with its accommodative monetary policy stance in the upcoming MPC meeting.

“Considering the elevated inflation levels, BWR expects the RBI MPC to adopt a cautious approach and hold the repo rate at 4 per cent,” Mr Rao said.

Mr Rao noted that in the last MPC, RBI initiated measures towards the rationalisation of excess liquidity from the system by announcing a phased hike in the cash reserve ratio (CRR) for restoration to 4 per cent.

“In the current scenario, the RBI may like to drain in excess liquidity, while higher borrowings and the frontloading of 60 per cent borrowings in H1 FY21 may put pressure on yields, and hence, the RBI may go slow in reversing its liquidity measures announced as a COVID stimulus since March 2020,” Mr Rao added.

Meanwhile, G Murlidhar, MD and CEO, Kotak Mahindra Life Insurance Company said 2021 has seen a rise in yields across the globe in line with vaccination led optimism.

“However, the case for India is a little different this time, with rapid rise in new COVID cases over last few weeks. In upcoming policy, MPC may continue to emphasise the importance of ”orderly evolution of yield curve” given benign inflation trajectory and second wave headwinds to nascent growth recovery,” said Mr Murlidhar.

In a bid to control price rise, the government in 2016 had given a mandate to RBI to keep the retail inflation at 4 per cent with a margin of 2 per cent on either side for a five-year period ending March 31, 2021.

The central bank mainly factors in the retail inflation based on consumer price index while arriving at its monetary policy. On February 5, after the last MPC meet, the central bank had kept the key interest rate (repo) unchanged citing inflationary concerns.

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Will The Shaktikanta Das-Led RBI Tweak Rates? Key Things | Sidnaz Blog

The Reserve Bank has slashed its key lending rate i.e. repo rate by 115 basis points since March 2020

RBI Governor Shaktikanta Das-led Monetary Policy Committee (MPC) will announce its policy decision on Friday, at the end of a scheduled review that began on Wednesday. This is the first meeting of the six-member MPC after Budget 2021. The Reserve Bank has slashed its key lending rate i.e. repo rate by 115 basis points since March 2020 to cushion the economy from the shock of coronavirus crisis.

The central bank had last cut its policy rate on May 22, 2020 when Covid-19 posed an unprecedented challenge to the economy. Since then, the banking regulator has maintained the repo rate – the key interest rate at which the RBI lends money to commercial banks – steady at a 19-year low of 4 per cent. The reverse repo rate – the rate at which the RBI borrows from banks – is at 3.35 per cent.

The RBI is seen holding the repo rate at 4.0 per cent in 2021 and possibly beyond, according to the median estimate in a Reuters poll. Most experts reckon that the banking regulator will refrain from tinkering with interest rates as inflation has remained above its targeted 4 per cent for more than a year. It is likely to continue with an accommodative policy stance in order to push growth.

Retail inflation fell sharply to 4.59 per cent in December 2020, the latest data shows. Retail inflation based on the Consumer Price Index (CPI) was 6.93 per cent in November.


Economists will closely watch for any changes in the RBI’s economic projections and views on the Budget, given that the country’s gross domestic product (GDP) is still in a contractionary mode amid signs of rebound. India was hit hard by the pandemic, suffering the worst contraction in the June quarter, and the GDP is projected to contract by a record 7.7 per cent in the current fiscal ending March 31, 2021.

A pick-up in manufacturing and rollout of the immunisation campaign has reduced some of the pessimism surrounding the economy. The Pre-Budget Economic Survey has predicted a “V-shaped” recovery, saying that the Indian economy will rebound, with 11 per cent growth, in the next financial year.

It would also be interesting to watch RBI’s stance on liquidity, particularly in wake of the massive borrowing programme announced in the expansionary budget as is reflected in the fiscal deficit, which has been pegged at 6.8 per cent for 2021-22.

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