Tools RBI uses to contain inflation:

Cash Reserve Ratio This is the portion of funds that banks have to retain with the Reserve Bank. When the RBI increase this percentage, the amount actually available with the commercial banks comes down The RBI increases the CRR to draw out exess money from the banking system and thus check increase in prices. Bank Rate This is the rate at which the BRI lends to other banks. If the RBI increase its lending rate, the ripple effect will be felt across all the other banks that will hike lending rates to continue making profits. Repo Rate If banks face any shortfalls of funds they borrow from the RBI. Repo rate is the rate at which banks borrow money from the RBI. If the RBI reduces repo rates, it will be cheaper for the banks to borrow money. On the other hand, if repo rates go up, borrowing becomes expensive. Reverse Repo Rate: The RBI can borrow money from the banks and offer them a lucrative rate of interest. This is called the reverse repo rate and banks will be very glad to have their money with the RBI for a good interest rate as the money is safe here. When the reverse repo rate is increased, banks find it more attractive to park their money with the RBI, and hence money is drawn out of the system.

Housing Loan Rates

HOusing loan Rates (floating rates) Bank 0to5years 6to10years Over10years Canara Bank 10.75 11.00 11.25 Bank of India 9.50 10.00 10.25 Corporation Bank 10.00 10.50 10.75 Syndicate Bank 8.75 9.25 9.50 Federal Bank 10.50 11.00 11.00 IDBI Bank 11.00 11.00 11.00 ICICI Bank 12.00 12.00 12.00 Vijaya Bank 9.25 9.75 10.00 SBI 10.25 10.75 10.75

RRBs can now attach properties

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act 2002 has been extended to the regional rural banks (RRB) too. Under the Act, banks can now exercise the power to take possession of securities and sell them without the intervention of courts. This would enable RRBs to improve their recovery performance. Karnataka Vikas Grameena Bank (KVGB) senior manager said the bank plans to impart suitable training to all its 401 branch managers on the provisions of the Act so as to enable them to make an effective impact on defaulting clients. He said the bank would enforce the Act against wilful defaulters as it provides power to take possession of securities and sell them without waiting for court directions or police action.

Banks told not to vie for creamy loans

The Reserve Bank of India (RBI) has warned banks against competing to lend to top-rated corporates under the Basel-II regime, saying it could squeeze their margins. The new capital norms require banks to set aside lower capital for loans to corporates with higher credit ratings. Under Basel-II, the risk weight for loans to AAA-rated companies is just 20 per cent against 150 per cent for BB or lower-rated companies. This means banks would have to provide only Rs 1.8 of capital for every Rs 100 lent to an AAA-rated corporate, while they would need to set aside Rs 13.5 of capital for loans to corporates rated BB or lower

PNB picks credit card partners

PNB decided to join hands with American International Group (AIG) for its credit card business.The bank said that its board of directors has approved the setting up of a joint venture bank in Bhutan and the upgradation of Representative Office in Shanghai in China to a branch. PNB has decided to rope in Venture Infotech Global Pvt Ltd - American International Group (AIG) Consortium as joint venture partner for the proposed credit card business subject to approval of the RBI and the Central Governement.

Banks in a position to meet Basel II norms’

The Basel II norms might lead to an increase in the overall regulatory capital requirements for the banks, particularly under the simpler approaches adopted in India, if the additional capital required for the operational risk is not offset by the capital relief available for the credit risk, said Mr V. Leeladhar, Deputy Governor, Reserve Bank of India. Mr Leeladhar was speaking on the implementation of Basel II. He felt that the Indian banks are adequately prepared for its implementation. “We have been scrutinising the progress of every bank for each quarter during the last two years and we are confident that banks are now in a position to meet the requirements,” he said. Basel II is based on three pillars. The Pillar 1 stipulates minimum capital ratio and requires allocation of regulatory capital not only for credit and market risk but also operational risk, while Pillar 2 deals with supervisory review process and Pillar 3 with market discipline which focuses on the effective public disclosures to be made by the banks. The advanced approaches, being data-intensive, require high-quality, consistency and time-series data for various borrowers and facility categories for a period of five to seven years to enable computation of the required risk parameters. It also calls for robust risk management and technological architecture and the highest standards of corporate governance.