New Delhi: With the RBI’s 50 basis points cumulative reduction in policy rates since February this year, transmission of the rate cut by banks is expected in the coming quarters, according to an SBI report.
The report points out that following the RBI’s 25 basis point cut in repo rate in February, public sector banks reduced deposit rates by 6 basis points, and foreign banks reduced 15 basis points, while private banks increased the rate by 2 basis points.. The analysis of the weighted average lending rate (WALR) on fresh loans versus the repo rate reveals that WALR for public sector banks and scheduled commercial banks (SCBs) closely follow the adjustments in the policy rate, implying an effective and timely transmission mechanism.
The report also points out that on the regulatory and development policy front, the RBI has decided to widen the option for managing stressed assets. It is proposed that a new market-based framework for securitisation of stressed assets will be created, in addition to the existing ARC route under the SARFAESI Act, 2002. This will give more flexibility in managing NPA.
Current guidelines on co-lending are applicable only to arrangements between banks and NBFCs for priority sector loans. Although co-lending is a win-win situation for all parties, the current model is still under examination. The expansion of co-lending to all regulated entities is a welcome move, but exact details are needed to gauge the impact and the scope of this new arrangement, the SBI report states.
That report also points out that with the recent spurt in gold loan portfolio coupled with an increase in the gold prices and volatility, regulatory intervention on account of fear of loan-to-value limit breaches is natural. Different sets of lenders, regulated and unregulated, presently follow different loan matrices on Loan to Value (LTV), interest rate, distribution channels, etc. RBI will revisit and issue comprehensive regulations on prudential norms and conduct-related aspects for gold loans.
The proposed review to harmonise and consolidate guidelines covering non-fund based facilities across all REs includes review of instructions on issuance of partial credit enhancement (PCE), with a view to, inter alia, broadening funding sources for infrastructure financing is a welcome move and could facilitate infrastructure financing, the report says.
This announcement follows the announcement on similar lines in the Union Budget. Present regulations for issuance of partial credit enhancement require capital for 100 per cent of the bond amount, even though PCE can be provided to only 20 per cent of the bond.
The PCE providing institution also has to provide a higher proportion of risk weightage for these instruments. RBI move could potentially be to revisit the capital requirements and to increase the exposure limits for PCE to make the instrument more market fit and also facilitate deepening the bond market, the SBI report states.
RBI permitted NPCI to upwardly revise transaction limits in UPI for person-to-merchant payments (P2M) based on evolving user needs. However, P2P transactions on UPI will continue to be capped at Rs 1 lakh, as hitherto. This will boost UPI payments in large value transactions like tax payments, etc.
In all, the evolving situation globally warranted policy agility to address the emerging challenges. Today’s policy has scored on this count, and accommodation at this stage does pave the way for a more aggressive policy response if required during FY26. Development and regulatory policies appear routine, but tied to the emerging situation will ensure financial stability, the SBI report added.
(IANS)
