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Commentary

RBI's Not-So-Earth-Shattering Policy Leaves No Room For Drama

RBI in it’s September 30 policy, has done absolutely nothing.

This is very bad news for the media, including me, who now have found themselves with one less reason to explain why the market is behaving the way it is.

"Why did banks fall?"

"Because RBI has created a situation…er…I mean it has raised…no…it has dropped…uhm, something like that"

"What did RBI do?"

(Sheepishly) "Nothing"

"So why did banks fall?"

"Because of interplanetary reaction to the Mars Mission while our PM made tea seller jokes in Madison square garden."

"Oh, so you don’t know."

"No! No! I know! We know! We have to know! We must know…." (Fading away into a bright light in the distance)

(That would be a fun show)

But there’s more?

Yeah, and now I’m back in my more serious avatar. Which means we will talk about inflation. Here’s the RBI chart for how they expect inflation to behave:

image

This is not a big deal it seems. Even worse

HTM Reduction Calendar

Banks have to hold certain amount of their deposits as government securities. This is currently 22%. But because of that banks were allowed to call such securities "Hold to Maturity" (so that a fall in prices will not cause them losses, as they are intended to be held till maturity, so they don’t have to mark prices to market). The HTM limit was 24%. Don’t even ask why there was a difference.

Apparently it was a big deal, and banks have now been told they will have to bring it down to 22% in a phased manner:

  • 23.5% on Jan 10, 2015
  • 23% on Apr 04, 2015
  • 22.5% on Jul 11, 2015
  • 22% from Sep 19, 2015

Why is this strange? Because I thought SLR itself will fall to 20% by next year – apparently not, given this stated calendar.

Anyway, this stuff is so esoteric it probably won’t matter one tiny little bit, and especially not when market prices are going up (bond yields are falling). At many levels, it’s only positive for banks.

KYC Eased?

KYC Guidelines to be eased so that a customer does not need to be chained to a wall and whipped until all the documentation he has ever had about his existence has been released in triplicate.

And you know I like this statement:

(banks) do not seek fresh documents if an existing KYC compliant customer of a
bank desires to open another account in the bank.

Which means if you’ve done KYC at one bank, you are done. Finally! I await your guidelines, Sire RBI.

Alert reader Manoj Nagpal immediately tells me I’m a doofus. (He’s too polite, so not his words)

No, it means if you’ve done KYC for one account, you needn’t do it if he wants to open another. That this is actually a policy tells you why we need warning labels on coffee cups: if you Know Your Customer for one account, why the heck have you ever in the past needed to know him again for another account? For F’s sake.

What else is due to come?

We have advance notice of what is going to happen soon.

  • Payment banks and Small Banks – final guidelines by end-November 2014.
  • NBFC rules to be changed by October 2014. (New NBFCs weren’t being registered for lack of such rules)
  • Early Warning System for bank parameters so that oversight can become increasingly granular.
  • Central Fraud Registry so before lending, a bank can figure out that it’s probably never getting its money back.
  • The concept of a "wilful defaulter" will become a "non-cooperative defaulter" it seems, by end-October 2014. At this point, I don’t know what to say.
  • Bharat Bill Payment System and Trade Receivables discounting system by end-November 2015. Very good this is.

I’m very excited about some of this stuff and what it will mean for Capital Mind as a data/analytics provider in the space. But otherwise this policy didn’t have anything to write home about.