The Reserve Bank of
On economy * * 8% plus GDP in medium-term depends on infrastructure, farm sector and fiscal consolidation. On external stability * Economy may face lower net foreign exchange inflow causing strain on liquidity. * Overall, * Foreign exchange rate volatility will be "greatly accentuated" from mid-September onwards. * RBI and government are taking steps to meet the shortfall in rupee and foreign exchange liquidity. * The current account gap is modest despite widening trade deficit. * The current account gap is modest on high private transfer and service sector export. On banking sector * It suggested that government should exit the monitoring function of PSU banks which is unrealistic now. * The cost of recapitalisation of banks by government is relatively low versus other nations. * Capital needs are likely to increase to maintain the credit growth momentum. * Capital need from government assessed as manageable if the credit growth is within 25%. * The committee may consider merging banks on borderline of 51% with banks with high government stake. * The merger should have positive synergies and should complement regional spread. On bank margins * Banks' sub-BPLR loan have risen to 76% in March 2008 versus 27.7% in March 2002. * Banks' net interest margins have not declined sharply despite more sub-BPLR loan. * Stable NIM with high sub-BPLR loan suggests issues of transparency in operations. Aggressive banks * Credit risk on banks' capital position is relatively muted. * More reliance on volatile liabilities like bulk deposits to fund asset growth. * Higher dependence on bulk deposits leading to higher asset-liability mismatch. * RBI may consider capital charge if banks' dependence on "purchased liquidity" is high. On Statutory Liquidity Ratio (SLR) * Any cut in SLR should factor-in the pressure of government spend and fiscal gap. * SLR norm for banks helps in smooth conduct of govt borrowing programme. * SLR cut could lead to banks buying illiquid and low quality asset. On corporate bond market * Need to allow short-selling of different money market securities in a phased manner. * Allowing AAA-rated corporate bonds to be repoable should be considered. * Opening corporate debt market to FIIs may raise financial stability issues now. * Collateral like AAA paper for LAF may be explored over time. * As FCAC takes place, more disclosure needed for FIIs to invest in gilts. * Committee not in favour of term liquidity facility as existing tool is adequate. On other issues * The broader consensus is that a fuller rupee float is desirable. * The migration to fuller rupee float should be gradual. * Capital account convertibility must be concomitant with external sector balance. * There will be some reversal in low debt-equity ratio on decline in companies’ valuations. * Infrastructure deficit binding is a constraint on * Rapid capacity additions is key to maintaining high growth with price stability. * * It is necessary to return to fiscal prudence at both central and state government levels. * Development of an active corporate debt market is critical to attract private capital. * There is an urgent need to develop corporate debt market to address funding need of NBFCs.
Government holding in PSU banks as on December 2008:
PSU Banks Holding PNB 57.80% SBI 59.41% Indian Bank 80% BOB 53.81% Union Bank 55.43% IOB 61.23% BOI 64.47% IDBI Bank 52.68% OBC 51.09% Andhra Bank 51.55% Vijaya Bank 53.87% Dena Bank 51.19% Syndicate Bank 66.47% UCO Bank 63.59% Canara Bank 73.17% Allahabad Bank 55.23% Central Bank of 80.20% Bank of 76.77% Corporation Bank 57.17% State Bank of 75% State Bank of 92.33% State Bank of Travancore 75% | ||||||||||||||||||||||||||||||||||||||||||||||
