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RBI governor Shaktikanta Das' FIBAC 2019 speech: Here are the key takeaways

Updated : August 19, 2019 03:44 PM IST

The Reserve Bank of India (RBI) governor Shaktikanta Das has urged banks to link new loan rates to external benchmarks. Speaking at the FICCI-IBA Banking Seminar, the governor also said that no non-banking financial company (NBFC) will be allowed to fail.

The RBI is gently nudging banks to link their lending rates to any external rate, mostly repo rate or of course the Treasury bills (T-bills).

The central bank governor pointed out that while initially the rate cuts from the RBI have not been transmitted, lately, in the past couple of weeks, quite a few banks have linked some of their rates to external benchmarks like the repo rate. He said that the RBI would like this to happen although it had put the external benchmark’s panel report in abeyance because of a lot of discussion with the banks and now the time has come to formalize the link between lending rates of banks and any external benchmark like repo or whatever the bank wants to pick.

It looks like something formal will come because those were the words he used — “the time has come to formalize the linking of lending rates to external benchmark.”

The other major thing he said was reiteration of what he had said at the end of the monetary policy press conference. He said that the RBI is keeping a very close watch on the interconnectedness between NBFCs and the financial system as well as the top 50 NBFCs and the movement of their asset quality. He said that it will be the endeavour of the RBI to not allow another NBFC to collapse, an obvious reference to Infrastructure Leasing & Financial Services (IL&FS) as the first one.

There were other two things that the governor said. One, the RBI and the Monetary Policy Committee (MPC) has kept growth as the big priority — which gives some hope that there will be more rate cuts or some other way of bolstering the economy.

Second, the offshore derivatives market will be brought onshore. This follows the recommendation of the Usha Thorat Committee. The non-deliverable forward (NDF) markets is rupee traded outside. The endeavour of the RBI will be to bring that to the onshore by giving some sops to non-resident Indians (NRIs) who trade in derivatives and another takeaway was that the RBI has given its inputs to the government on PSU bank reform.

It is important because the department of financial services is goading public sector banks to align their priorities and to ideate and instill some inherent reforms in that segment.
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