The savings deposits rate remained at 3.5% since 1 March 2003 for more than eight years till early this month when RBI revised it to 4%. Given the level of inflation depositors are getting negative returns. RBI has recently circulated a discussion paper on deregulation of savings deposit rate.
As per the Reserve Bank of India (RBI) directive the chief executives of foreign banks operating in India will be responsible for local regulatory, statutory and audit compliance.
The RBI raised required loan provisioning. Restructured loans are now provisioned at 2%, up from 0.25%-1%; loans classified substandard are now 15%, up from 10%; secured loans classified as doubtful for more than a year are now 25%, up from 20%; and loans classified as doubtful for one to three years are now 40%, up from 30%. These higher credit costs will reduce bank earnings this fiscal year, but enable banks to enhance their buffers against potential loan losses. Importantly, higher interest rates will negatively impact borrowers' debt-servicing abilities, and may further result in a deterioration in asset quality.
Real estate firms are turning towards Non-Banking Financial Companies (NBFCs). Most banks have shut their doors on this sector.
RBI has decided to do away with priority sector lending status for bank loans to NBFCs. With 90 per cent of commercial vehicle sales financed by NBFCs, the move by the RBI is expected to hurt the small road transport operators as it would be tough for them to access finance, which will also become more expensive.
