Financial Awareness for RBI Grade B-3 August 2017

Financial Awareness for RBI Grade B-3 August 2017

  1. RBI to release final norms for tri-party repo on corporate bond in August (Source: MINT)

  • The Reserve Bank of India (RBI) will release final norms for tri-party repo on corporate bonds later this month—a move which is expected to aid market development. Tri-party repo is a type of repo transaction where a third entity called tri-party agent will act as an intermediary.
  • Increasingly, companies, especially those rated well and non-banking financial institutes, have been fulling their fund requirement through the bond route rather than solely depending on bank loans. Despite this, liquidity and price discovery is the biggest challenge in the bond market, because secondary market trades are far and few due to limited participation by long-term investors such as insurance companies and pension funds.
  • Hence, other investors are cautious in buying bonds other than top-rated securities in the fear of getting stuck with the security till maturity. Tri-party repo will also pave the way for allowing corporate bonds for RBI’s liquidity adjustment facility (LAF), something the Khan committee had also noted.

2. RBI group to study MCLR regime so that your bank reduces loan rate (Source: BS)

  • Voicing displeasure over banks not doing enough to reduce lending rates, the Reserve Bank of India (RBI) said an internal group would review the working of the system to improve transmission. The central bank will also explore ways to link bank lending rates directly to market-determined benchmarks.
  • Though the marginal cost of funds-based lending rate (MCLR) system is an improvement over the base rate system, monetary transmission by banks has not been entirely satisfactory, the RBI said in a statement on developmental and regulatory policies.

3. India on track to meet 3.2 per cent fiscal deficit target: UBS (Source: FE)

  • The Indian government is on track to achieving the fiscal deficit target of 3.2 per cent of GDP in the current fiscal year, says a UBS report. The global financial services major said however that balance sheets of states remain “stretched”.
  • The central government’s fiscal deficit has already reached 81 per cent of the full-year target in the first quarter (April to June) of 2017-18. “Accordingly, the cumulative fiscal deficit reached 2.6 per cent of GDP FYTD. That said, we believe the central government will be able to achieve the fiscal target of 3.2 per cent of GDP in FY18,” UBS said in a research note.
  • The report noted that while pursuit of structural reforms, including a goods and services tax, bodes well for India’s sovereign rating (currently at the lowest investment grade), the risk of a worsening consolidated (centre and state combined) fiscal position may act as a deterrent.

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