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The earlier two repo rate cuts of 25 basis points each in January and March 2015 had not resulted in any corresponding reduction in banks' base rates. As a result, highly-rated large corporates have borrowed at very competitive rates from the debt and money markets, where the transmission of the policy rate cuts has been much more forthcoming. The proposed RBI recommendation for banks to move in a time-bound manner to marginal cost of funds-based determination of their base rates, is a welcome change. It will result in better and quicker transmission of policy rates into banks' lending rates.
Another interesting proposal is the possibility of Indian companies being permitted to raise money through external commercial borrowing via issuance of rupee-denominated bonds in international markets. This will effectively transfer the hedging risks to the investor, as opposed to the issuer, and will help develop bond market. The move could also reduce RBI's concerns with respect to burgeoning foreign currency denominated debt.
RBI's views and final guidelines with regard to tradeable priority sector lending certificates, which banks may exchange among themselves to meet deficits in priority sector lending, may have a bearing on the direct assignment activity undertaken by non-banking financial companies.
Sam Ghosh
Chief Executive Officer
Reliance Capital
Chief Executive Officer
Reliance Capital
