RBI pushes more liquidity into the banking system
Dec 04, 2013
Source : The Times of India


DELHI: The RBI cut the penal rate of interest, among some of the measures it took recently to push the money market to normal conditions.

Further, it has taken steps to expand the financial markets by agreeing to lend to banks for a longer term.

The RBI reduced the rate under the marginal standing facility (MSF) by 50 basis points to 9%.

Further, it introduced lending to banks for seven days and 14 days, instead of the current practice of just one day. The longer tenure lending began from October 11 at rates based on bids by banks.

The current steps by the RBI will increase liquidity in the system. These measures are aimed at unwinding of the liquidity tightening that began in July to stem the currency slide that took the rupee to record lows.

Since mid-July, the RBI has made borrowing costlier as it believed that a lower interest rate was used to speculate on the rupee, leading to its collapse.

It reduced the amount banks can borrow against their excess government bonds holdings to 0.50% of the deposits, and increased the MSF rate by 200 basis points. It also raised the minimum cash reserve ratio (CRR) to be maintained to 99%.

In September, the RBI reduced the MSF by 75 basis points and raised the repo rate by 25 basis points, citing inflationary pressures. Of late, the rupee rallied by 10% since its record low as the US dollar inflows increased due to measures like attractive currency swap rates on non-resident Indian deposits.

The RBI has now reinitiated measures to ease the liquidity conditions by cutting the MSF rate. This reduces the gap between the repo rate and the MSF to 150 basis percentage points. Besides lowering the MSF rate, the RBI will also inject liquidity in the form of 7-14 day term repos at an additional 0.25% of the Net Demand and Time Liability (NDTL) over and above the 0.50% of NDTL for each bank.

The overall liquidity deficit has eased to about Rs 1.20 lakh crore as compared to a peak of Rs 2 lakh crore in September.

The government decided to provide additional funds to the public sector banks to enable them to extend more credit to certain sectors to stimulate demand and combat the slowdown in the growth rate. This additional amount of capital will be provided to banks to enable them to lend to borrowers in selected sectors at lower rates in order to stimulate demand.

As a result of these steps, banks which are more dependent on money markets will be impacted positively. The steps will help ease liquidity in the banking system. With greater liquidity, banks will be able to lend more. So, their home loan portfolios can increase.

With the festival season still on, this helps banks push more money into the markets as home loans. However, the RBI has to reduce the repo rate for a stronger impact on interest rates. Yet, the current measures can offset the impact of the recent repo rate increase and consequently the interest rates to an extent.

When the inflationary pressures ease and the RBI steps in to reduce the repo rate, together with these moves, it will enable a reduction in lending interest rates. Borrowers on a floating rate gain because now the interest rates are linked to the base rate and in case banks reduce their base rate, the interest cost reduces.

Latest Realty News

Road to evolution of Pune
Dec 04, 2013
PUNE: Pune has an advantage by virtue of the fact that it has been able to add to its borders by means of surrounding villages. This has served to decrease the pressure on the central city and encouraged an outward growth pattern. However, there are challenges related to Pune’s infrastructure, particularly its road network and these have more to do with the speed of this growth. While there are various proposals for road widening, these have to be translated into real time, to be effective, as i
Low prices pushing demand in new Ranip at Ahmedabad
Dec 04, 2013
AHMEDABAD: Ahmedabad is the financial capital of Gujarat. It is developing fast and it has already proved its worth in fields of business and economic activities. The city houses a large number of small, medium and large scale industries. Many MNCs and major Indian companies have set up their manufacturing units as well as corporate offices in the city. In addition, the fast growing IT industry has also created good number of job opportunities and as a result, there is huge influx of people in t
Is it time to buy residential property in Mumbai?
Dec 04, 2013
MUMBAI: Here’s good news for those nurturing that elusive dream of owning an apartment in India’s financial capital. Like New York or London or any other blue chip market, Mumbai has thus far remained largely unscathed by a correction in real estate prices. And so, despite a pile up in inventory, a large pull back in demand, plummeting new launches and deteriorating finances of property developers, prices haven’t really come down. But now there are signs of a softening of prices according to a r
AMC wants registration of builders
Dec 04, 2013
AHMEDABAD: Just like architects, engineers and structural designers have to be registered with the Ahmedabad Municipal Corporation (AMC), the civic body has demanded the same for real estate developers.
Hike in TDR prices takes the Mumbai market by surprize
Dec 04, 2013
MUMBAI: The real estate market in Mumbai has been going through ups and downs since the past five years. However, the segment received a major jolt due to the recent spike in transfer of development right (TDR), a move which has been received by the suburban developers with great caution and even disappointment. TDR plays an important role, at least in the suburbs of Mumbai. Ram Raheja, director and head-design and architecture, S Raheja, says, “TDR is an important component for builders redevel
Realtors keen on getting projects rated: Crisil
Dec 04, 2013
KOCHI: Several real estate developers are showing interest in partnering with Crisil Ratings to obtain certification prior to showcasing their projects before customers, Sachin Nigam, Senior Director – SME Ratings, Crisil Ltd, has said.
‘Development of Kolkata will be around areas near Metro’
Dec 04, 2013
KOLKATA: Future development of the city will mostly be centred on routes nearest to the Metro Railway, CREDAI Bengal President Harsh Vardhan Patodia said here on Tuesday.
‘Real estate sector has huge potential’
Dec 04, 2013
BHUBANESWAR: Focusing on increasing the potential of the housing sector in the country, the Confederation of Real Estate Developers’ Association of India (Credai) will hold a two-day national conclave with the theme ‘Housing the game changer: Leading to double-digit GDP growth’ in New Delhi from December 13.
Slowdown in commercial real estate likely to continue
Dec 04, 2013
DELHI: The economic downturn has subdued office and retail markets, resulting in a sales slowdown as well as pressurized capital values across leading cities—according to CBRE Research's year-to-date coverage of trends in India's real estate sector. Buyer sentiments in the housing market have remained largely cautious because of relatively high price points and sticky borrowing costs, amid an uncertain economic climate. As a result, investment has slowed considerably across segments, resulting i
Commercial real estate segment to remain subdued: CBRE
Dec 04, 2013
DELHI: Demand for commercial real estate is likely to remain subdued in the medium term as corporates continue to be in a consolidation mode while excess supply may put pressure on capital and rental values, property consultant CBRE said today.

Latest Realty News Of State

Realty Talk's