No rate reduction but RBI finishes, dropping overlap Biz -Regulations in Credit Poot

The central bank on Wednesday wrapped a box of delicacies to power credit and business, even if it delivered a better growth outlook and kept policy figures untouched. The Monetary Policy Committee (MPC) kept the Repo rate unchanged on the second time in a row at 5.5%, while GDP rose for the year from 6.5% to 6.8%, citing the resilience of the economy in light of turbulence. The policy panel is now seeing inflation at 2.6% compared to 3.1% earlier, thanks to the recent cuts in goods and services (GST). The Governor of the Reserve Bank of India, Sanjay Malhotra, also hinted at the possibility of another rate reduction in December, saying that falling inflation ‘created space for rate reduction’. Nevertheless, the MPC has decided to maintain the status quo on rates due to global uncertainties and the lack of full transfer of past financial measures. The RBI lowered the policing rate by a total of 100 BPS between February and June. The RBI has also done a series of measures for better bank competitiveness, credit flow, comfort, foreign exchange management, consumer satisfaction and internationalization of the rupee. “Apart from a Dovish pivot, the RBI has also facilitated several credit standards, including lowering risk weight for non-banking institutions and infrastructure sector, and also rationalized various foreign exchange transactions measures,” Bofa Securities said in a nota. “It is largely aimed at reducing lending issues, especially to the MSME sector, and also to give greater flexibility for lending against financial assets. These measures will generally be welcomed, but their immediate impact on credit question has yet to be seen,” he added. The biggest relief for banks, especially the private, was the decision to drop a October 2024 plan that would limit them to have overlapping businesses with group companies. Potential beneficiaries include HDFC Bank, Axis Bank and ICICI Bank, which have non-bank subsidiaries and would be forced to take them up or get rid of them. The BSE Bankex closed 1.44% higher on Wednesday, compared to the benchmark of 0.89% of 0.89%. While the MPC members unanimously voted to keep the rates unchanged, they were divided over the committee’s position, with the two external members voting for a change in an ‘accommodative’, Governor Malhotra said at a post-policy conference. Malhotra said the removal of the word ‘limited’ from the leadership of RBI in August reflects the improved economic conditions in terms of sustainable lower inflation and a strong growth track. In August, the governor said RBI has “limited space” for further rate cuts. Printing the RBI has also suggested to allow banks to finance acquisitions by Indian businesses, borrowing more against shares and units of Reit’s and invitations. It also removed the haircut on lending against listed debt effects and expanded bank financing for purchases. The Central Bank also proposed to drop its guidelines for lending on large companies with restrictions on exposure to securities issued by an individual company. In a conference after the policy, Governor Malhotra resolved the fear of concentration risk, given newer guidelines in place, and the significant decline in the part of the lending by banks since the first time norms. “Although the large exposure framework, as it is introduced for banks, addresses concentration risk at an individual bank level, concentration risk at the banking system level, as and is considered a risk, will be managed by specific macroRudential instruments,” RBI said. Deputy Governor Rajeshwar Rao said it could include measures such as a sector wide or consortium hood on banks’ exposure to a single entity, if necessary. The RBI may also have some of the restrictions on so-called transaction accounts relaxing-held accounts, cash credit accounts and overdraft accounts. The measures were also positive for non-bank lenders. RBI has introduced lower risk weights on NBFC loans to operational projects among public-private partnerships, and a ‘principle-based framework’ for lending to this segment, which would aim to align risk weight with the risks of the projects. The RBI can also issue fresh licenses for urban cooperative banks (UCBs), something it stopped in 2004, given the weaknesses in the segment. The rate break is expected, says Sudipta Roy, managing director and CEO, L&T Finance. “However, the actual action is contained in the various measures announced to improve the credit flow in the economy,” Roy said, adding that they are ‘appropriate timely’, and will support the pursuit -growth lakes. However, HSBC Investment Research said in a comment that while the reforms to support credit growth and rationalization of certain regulatory limits will help keep a lid of the overall credit growth on the short-to-medium term, single-digit nominal GDP growth. The central bank has proposed a new system in which banks proposed a new system in January 2023 in which banks would expect loan losses and hold funds in advance, in a deviation from the current practice to provide for default. In a relief for banks, RBI suggested Wednesday to perform the so -called expected credit loss (ECL) framework in a related way, giving enough time for the transition. The Apex bank also conducted a standardized approach to calculate the amount to be set aside in accordance with the Basel frame. A further advantage for NBFCs was an overview of the external framework for commercial loans (ECB), which, among other things, removed the border fabrics over the cost of borrowing and reviewing end -use restrictions. The central bank has also begun to consolidate its instructions in a set of master directions to give access to access and to reduce compliance costs. It will also look to strengthen the internal Ombudsman mechanism in regulated entities, and suggest that such bodies with a board of directors are equipped with compensation forces and allowed access to the complainant, bringing the role of iOS more in line with that of the RBI ombudsman. The scope of the RBI Ombudsman scheme will be extended to the central cooperative banks in the state and district, which is now under the supervision of Nabard. Internationalizing Rupee The Apex Bank also continued to take the Rupee Global, so that authorized trader banks in India and their overseas branches in rupees could borrow to residents in Bhutan, Nepal and Sri Lanka, including a bank in this jurisdiction, to facilitate the border dissertation. “It is essential that INR liquidity is made available and accessible to residents of other countries,” RBI said. The RBI also suggested, including selected currencies of India’s most important trading partners in the list of reference rates published by Financial Benchmarks India PVT. Ltd. to deepen the country forex market. It is expected to encourage banks to quote directly into a larger set of currency pairs, and to eliminate the need for multiple currencies conversions, which make trade more effective. Deputy Governor T. Rabi Sankar said the RBI is considering a few currencies such as the Indonesian Rupiah, but the list is yet to be finalized. Other measures include the extension of the Repatriation for Indian exporters to process the yields, and increase the timeline for the layout of foreign exchange in trade transactions. The goal is to encourage Indian exporters to open accounts with IFSC banking units, increase the Forex Serkidity in IFSC and help Indian traders to complete business transactions effectively. RBI has also expanded the scope of investment of balances under special rupee accounts from only government bonds to now corporate bonds and commercial articles.