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Past
Observatio
ns (Vol2)
Future
Suggestion
s (Vol1)
Mo
su st
gg So
ac est me
c e io
pt ns
ed
Past Data
Future Plan
Tax collection
&
Expenditure
5.Infra
V2C8-Paris Summit,
Energy
V1C11-Powering 1
India
B6. Rural infraemployment
B7. Infrastructure
2.Budget-Fiscal Policy
V2C2-Pub.Fin; V1C3JAM
V1C6-bounties;
V1C7-Fiscal Cap
B2. Fiscal Discipline
B3. Tax Reforms; B4.
Ease of
4.Sectors of
Economy
V2C5-Price,Agri.;
V2C6,7
V1C4-Agri ; V1C9Fertilizer
V1C2-Chakravy;
V1C10-Labour
6.HRD
B5. Agro: 2x farmer
V2C9-Social
income
infra.
V1C5-mother-child
B8. Social Sector &
healthcare
B9. Education,
Skills, Jobs
Chakravyuh Challenge in
Economy
1. Political 2. Fiscal 3. Economic
So far we learned
So far we learned
1.8 Lc
r. nee
d ed
PSB have 9+
___
10.8
needed
Capital: ___?
RWA: 120 LCr
Govt:
70kCr
(IndraDhanush)
+
Capital
Market
By
purchasing preferential shares; In
phased
manner, first priority to large &
__?
good performing PSBs
70kcr Preferential
shares to govt.
Equity (Owners/ Proprietors)
(Indradhanush)
Partnership, IPO-Shares, VCF, Angel Investor
Dividend if profit
Last claim during liquidation
PSB can issue FPO, but govt.
shareholding must remain
>50% (Except IDBI)
Addl.
Capital
1.8 lakh
1.10 Lakh
cr. cr.
remains
NPA:
4R4D
BIC
Bifurcatio
n of CMD
Post
BBB
Bank
consolida
tion
Misc.
PSL-framework,
Certi.
MP Incomplete
Transmission,
MCLR etc.
Diferential Banks
Watch L1/P2 to P9
before going further
Start/E
xpand
Biz
36% interest on
each loan
Edu.Lo
an
Input4
Next
crop
DDSL
LY
Onion
Rs.100/k
g
Rs.2000/
kg
Growth
Agri-Mfg-services, start-ups;
Export, Infra,..Inclusive
growth: PSL
U
P
S
C
P
r
e
li
1. Skip
2. Attempt
3.
U
P
S
C
P
r
e
li
1. Skip
2. Attempt
3.
100 crore
SBI to
Repurchase
@108 Cr.
Reverse Repo rate: when RBI borrows
After
7
days
from clients
Collateral: G-Sec
But not from SLR
All clients eligible
100 crore
SBI to
Repurchase
@109 Cr.
Reverse Repo rate: when RBI borrows
After
7
days
from clients
Collateral: GSec
Even from SLR
Long term
Loan
If CRR/SLR not
maintained
penalty-: bank
rate+3 or 5%
Depending on repeat
Interest
rate: 9%
BANK
RATE
Collateral:
Nothing
Repo+1%
Bank Rate =
Policy rateMSF
corridor
0.5%
6.75%
Repo cut by 25
basis points
RR =Repo1%
Policy rate
corridor
0.5%
Before LAF
MSF: Repo+1%
Repo = 6.75%
Bank Rate =
Policy rateMSF
Repo cut by 25
basis points
corridor
0.5%
RR =Repo-1%
MSF:
Repo+0.5%
=7%
Even on Sundays, sold
Repo = 6.50%
See L1 Video series
for more LAF vs MSF
diference
Policy rate
corridor
0.5%
RR =Repo0.5%
=6%
Even on Sundays,
sold
Inflation
Deflation
fight
fight
Dear Money Cheap Money
policy
policy
Increase
Decrease
This is just Recap
Watch L1 for more
Being Raised
to fight
inflation
Before Rajan
45 days
review
Being reduced to
boost growth & fight
deflation
Rajan starts
60days
(bi monthly from
2014)
All points not
plotted here
2015, Feb: MP
Framework
between RBI-Gov
2016, Feb:
Budget promises
to amend RBI
Act for M.Policy
reforms
Flexible inflation
targeting (FIT)
1. Policy rate=Repo rate (RBI
RBI Governor to
Act34)
make
2. CPI-Combined (MOSPI)
Dy.Gov in his
3. 2-6% (OR 4 +/- 2% band)
absence
4. 6 monthly .docx on#EPICFAIL
inflation projections
CPI-C: for
outside 2-6%
next 6-18 months
Promise? Warnaa
bike nahi milegi
Budget 2016
Monetary
Policy
10.14
9.71
Incomplete transmission of
monetary Policy
-43bps
6.75
125bp
s
Why r u not
as much
as I'm?
Liabilities
NDT
L
Demand Deposit
Time Deposit CRR
SLR
Assets
Loans
40%
PSL
Time: FDRD
Demand: CASADD
Cant lend
No profit
SLR
22%
21.5%
21.25%
SLR =
Rs. To
lend
Cash, Gold
RBI approved securities
(G-sec,T-bill) but not oil
bonds, Ferti bonds etc.
U
P
S
C
P
r
e
li
S
u
r
v
e
y
-
1. Skip
2. Attempt
3.
Fortnight
Friday
Rs.21.25 cr.
Rs.4 cr.SLR
CRR
Friday
Borrowers
38%
Recommends
SLR
25%
#Bharatratna4Narsimhan
Kyoki
Hum bi
desh ke
liye
khelte
hai
22%
21%
25%
.
s
R
e
r
o
m
t
u
p
s
k
n
a
What if b
Here?
?
g
n
i
n
a
o
l
Instead of A&R /
RWA
C&C
100Cr.
Capital10.8
9 cr.
Capital
cr.
RWA100Cr.
120
RWA
Cr.
9%
CRAR
In other words
High level of
stressed assets
encourage PSB to
overinvestment in
risk free G-sec to
maintain a
respectable risk-
A&R /
Financial repression of households
Exits towards
Deposit
or
(4-7%)
Bank
(Margin)
G-sec
(8%)
C&C
1. Gold (CAD : weaker
Rs.=Expensive
petrol/diesel)
2. Real estate (Speculation,
Black $$)
Solutions
1. RBI : Ceiling?
2. Govt.: PDMA
3. Independent BIC
Rs.100
Onion 20 per
kg
Money
Rs.104 (SA
-Demand)
Rs. 108 (FDTime)
Can buy 5 kg
PP
31st Dec.
Onion 22 per
kg
201
2
Nominal
Interest
9.25
Minus
Inflation
11%
Real
Interest
Rate
1.75
Purchasing Power
Client shd buy gold, real
estate
201
2
201
5
Nominal
Interest
Minus
Inflation
9.25
11%
7.00
5.4
%
Real
Interest
Rate
1.75
Purchasing Power
Client shd buy gold, real
estate
+1.6
Purchasing Power
Client should move
towards
Time deposits (FD/RD)
Like this
Not following
Substitution Effect
Wealth Effect
Negative spillover
Bogus
Higher
edu. In
India
Juntaa
going
abroad
with $1 bn
PSL,
housing,
Entreprene
urs, sufer
Banks
deposit
esp. Time
deposits
Loan rates
not
Time liabilities
Fixed deposits (FD)~7%
Current Account
(CA)-0%
Recurring deposits
(RD)
Savings Account
Meaning
(SA)-4%
Cash certificates
Classificati
1. More reliable Staf
raw material
Demand Draft
on
security
for Banks
Componen
deposits
~11,800 Billion
Rs. =Banks
2. ++ NDTL
rely less
ts
on RBI for money=
~92,000 Billon Rs.
incomplete Transmission of
Demand deposits=
unreliable source to run
a Bank loan biz.
As Time deposit
Loaning = bad for
economy
Assertion- Reasoning
E
A) Slowdown in time deposits, will
c hamper the growth in bank credit.
o R) Time deposits are cheaper source of
funding,
and
allow
banks
to
aford
higher
n interest rate spreads.
o
m Both correct and R explains A
(Ref: ES-15-V2c3 Page 50)
i
1. Skip
2. Attempt
3.
Wealth efect is
high financial
repressionnot
good for economy
Assets
NPA
SLR (low
return)
PSL- esp.
Agri
Liability
Deposits
Equity
1115
1000
0
51
BoB
-1000
-2000
-3000
-4000
-3342
Dena
Allahabad
PNB
-486.14
-662.85
#EPICFAIL in
History of
Indian
Banking
Industry
SBI
62%
Rs.Cr. Profit/Loss
S
u
S
u
liability side
C. Twin Deficit means high level of fiscal deficit
and Revenue deficit CAD
D. None Correct.
1. Skip
2. Attempt
3.
10.14
9.71
43bps=
6.75
125bps
=
RBI Repo
Incomplete transmission of
monetary Policy
MP.Framework
reformed
Inflation controlled
Why r u not as much
as I'm?
SCB Base
10.14
RBI Repo
43bps=
SCB Base
9.71
125bps
=
PSL too cud
have got
cheaper loans
otherwise
6.75
Many
reasons
Buy home /
Carpostponed
Negative spillovers
Postpone
car/home
loans
Indian cos
going for
1. Bond Market
(attractive
rates)
2. ECB (RBI
relaxed)
OMC
borrowing
less from
SCB
After deregulation of
Petrol-Diesel (Kirit
Parekh)
Market determined
prices
OMCs have good
cash flow=> lower
requirement of bank
credit
E
c
o
n
o
m
i
Survey2015
Credit
impulse
Meaning
10.14
9.71
43bps=
6.75
Incomplete transmission of
monetary Policy
Why r u not
as much
as I'm?
125bps
=
Post: FD:
8.40%
KVP: 8.7%
To fight
deflation /
boost growth
Ill cut repo rate
=cheaper
funds=cheaper
loans
Deposit Lending
1 yr FD Base rate
9.30%
7.30%
Deposit Lending
1 yr FD Base rate
8.30%
6.30%
Margin
9.30-7.30= 2%
If banks are expected to
decrease lending rate,
theyll want to deposit
rate as well to keep
margin same
(A)
Small
saving
schemes
have
r
hindered the transmission of
o monetary policy in recent years.
m (R) the return on small savings
s
u
8.78.1
8.1
6
4
2
0
If I fail Monetary
policy targets for 3
quarters, my
justification.docx
will also blame you &
your post office.
Shaabashkhub
milegaa rang jb mil
bathenge 2 yaar
7.4
In February 2016
Past
Observatio
ns (Vol2)
Future
Suggestion
s (Vol1)
Hi
gh
Sm re
=i all S turn
tra nc
si
a
v
m ns om ing n
on m ple s
et iss
So ary ion te
,g
ov poli of
t cy.
Past Data
Future Plan
Tax collection
&
Expenditure
Incomplete transmission of
monetary Policy
Ab unko MCLR ka
dose denaa
2010: Base
Rate
Benchmar
1991:
k Prime
M.Narsimha
Lending
n#Bharatratn
Rate
deregulate a4(BPLR)
Narsimhan
2016:
MCLR
a.k.a. Aag, Paani aur
Bhai se
Kyoki hum
bhi desh
ke liye
khelte hai
SBIs
+Spread
Car loan
Two wheeler
Education (4L)
Home (upto
75L)
0.75%
8.25%
3.5%
Home (>75L)
0.30%
0.15%
Base
rate+Spread
10.75%
18.25%
13.5%
10.15%
(10.10%W)
10.30%
(10.25%W)
Base Rate
Deposit
Interest (Cost
of Funds)
CRR Cost
Operating Cost
Min. rate of
MCLR
Reviewed on
Banks
discretion
Focused on
avg. cost of
funding
Base Rate
MCLR
Banks
discretion
Focused on
avg. cost of
More Technicals here
funding
Base Rate:
9.3%
+ Spread
0.25%
=Home loan@
9.55%
Rs.1,000 saved
in 10 lakh
loan.
+ Spread
0.25%
Only
after you re-tweet
=Home Loan@
9.45%
#bharatranta4Mallya because
mein bhi desh ke liye kheltaa hu.
E
S2
0
1
5
v
2
c
3
M
o
1. Skip
2. Attempt
3.
E
S2
0
1
5
v
2
c
3
M
o
1. Skip
2. Attempt
3.
Limitations
1.Incomplete transmission (prev.slide)
M.Policy
2.Monsoon uncertainty, cyclone, flood, cant alone
combat
draughts => Supply side constrains
inflation/low
3.Crude oil, gold import
-growth
4.Unorganized money market; Shrof;
lack of financial inclusion; Black
money, underground economy
5.Fiscal deficit, subsidy leakage
6.7th PC; OROP : wont hurt *that*
much on inflation front says survey
A&R
/C&C
10.14
9.71
43bps=
6.75
Incomplete transmission of
monetary Policy
Why r u not
as much
Im?
125bps
=
Qualitative: Selective,Direct
Margin / LTV
Consumer Credit control / EMI
Credit Rationing /PSL
Moral Suasion
Direct Action
PSL-framework,
Certi.
MP Incomplete
Transmission,
MCLR etc.
Diferential Banks
Watch L1/P2 to P9
before going further
growth
Then PSL qty=
Inclusive growth=
Foreign Banks
banks <20
branches
SCB | Foreign
Banks 20/>
branches
April
2015:
PSL
norms
revised
Deposit & credit
40% But
in
phased
manner
Adjusted net
bank credit OR
Of balance sheet
exposure
Whichever is
SCB =high
domestic scheduled commercial
New PSL:WEF 1/4/15; *=new cat.; Loan given to MFI also counts
Category
% SCB
Micro
Enterprises
Khadi-Village
indu.
All PSL
8%
7.50%
4.5%
New PSL:WEF 1/4/15; *=new cat.; Loan given to MFI also counts
Category
% SCB
FB with
20/>+
Micro
Enterprises
Khadi-Village
indu.
8% Post-2018
7.50% Post-2018
New PSL:WEF 1/4/15; *=new cat.; Loan given to MFI also counts
Category
% SCB
FB with
20/>+
Micro
Enterprises
Khadi-Village
indu.
FB <20
NA
NA
8% Post-2018
NA
7.50% Post-2018
NA
U
P
S
C
2
0
18000
16000
15008
14343
14000
12000
selections
CSAT-P2 33% qualifying
doesnt mean = more
selection
10000
8000
6000
33002797 2673
4000
2000
2014
2015
2016
12911129 1079
Final Vacancies
Service (equipment
investment)
Mfg. (plant-machine
investment)
Micro: upto
Micro: upto
10 lakh
25 lakh
Small: >10l Small: >25lArea <10k
2cr.
5cr.
population
/
Investment<15k
Medium:>2 Medium:>5worker
All eligible, but special quota of 7.5% for Micro enterprises
&
10cr
Khadi-Village industries 5cr
Housing
Rs. 28 lakh out of Rs. 35 lakh home In Metro (10Lakh/>)
Rs.20 lakh out of Rs.25 lakh home in other areas
Home repairs, slum rehab etc. eligible with similar caveats
Export credit
100 cr. Turnover
Max. 2% for SCB and FB(20/>Branches)
**Renewable Energy
upto 15 crore to solar/biomass generators, wind mills, micro-hydel
plants; non-conventional energy for street lights, remote village
upto Rs. 10 lakh for individual household
PSL
Problems
and
solutions
Same by SIDBI
State governments
get infra. Loan
t
i
d
e
Cr isk s
20 cr.
R et
18 cr.
s
As ash loan
loan
C ow
fl
RBI EKuber
16 cr.
18 cr.
loan
loan
Short term accounting instrument
(expire @FY)
Min. pack 25 lakh x 8=2 Cr.
Four types
PSL-Agri
PSL-S/M Farmer
PSL-Micro
enterprises
PSL-Overall
Four Players:
SCB
RRB
Local Area
Banks
Small Finance
Banks
Interest Subvention
Lakh Cr.
Budget-2016
8.5
Budget -2015
@PSB, RRB,
Cooperative Banks
From 2006 Given
@+7% upto Rs.3 Lakh
Interest Subvention:
-2%
If regular repayment:
-1%
Farmers Efective
interest rate: 7-2-
ISS reform
Deepak
Mohanty
RBI
Exe.Dir.
ISS reform
Deepak
Mohanty
RBI
Exe.Dir.
PSL-framework,
Certi.
MP Incomplete
Transmission,
MCLR etc.
Diferential Banks
Watch L1/P2 to P9
before going further