The RBI recently announced its annual policy for 2011-12. NDTL, MSF, LAF, and so on and so forth, the document has a lot of financial jargon. So what do the policies of the RBI with respect to these jargons mean in real life terms to a common man’s day to day life… Read on to know more.
The common theme of the policy seems to be to strongly rein in inflation amidst rising commodity prices and equally increasing demand.
Savings bank interest rate hiked
This is probably the decision which will have an immediate direct impact on almost every individual. What has been for over 8 years a stagnant rate has today been revised on the higher side. The RBI has increased the interest rate that banks have to pay us on our savings bank deposit to 4% from 3.5%. This will mean you have a little more incentive to keep your money in a savings account. Although, it must be noted that this could be a very temporary measure as the RBI has recently put up a debate for deregulation of these rates. If and when this happens then we could see both positive and negative effects for the common man based on the financial environment.
Repo and Reverse repo rates hiked
The 50 basis points hike in the rates at which RBI lends to banks and at which rate the RBI borrows from banks has meant that banks will have to pay higher interest for the short term funds borrowed from RBI. On a broad spectrum this equal hike in both rates will effectively neutralize the effect. The direct effect on the common man hence will be in the fact that this will help in putting a rein on the ever increasing inflation seen in the last few years.
Bank rate and CRR kept constant
The Bank rate (rate at which RBI lends for long terms to banks) and the Cash Reserve Ratio (amount on money as a percentage of their Net Deposits and Time liabilities) have been kept constant at 6%. This means that the common man can heave a temporary sigh of relief. Though banks may not increase their lending rates for Home loans, Personal loans etc immediately as the rates for these lending are also dependent on the Bank rate and CRR. it could however happen by the end of next month or so.
Changes in Framework for NRIs and PIOs
The RBI as indicated a strong commitment to simplify and streamline procedure relating to foreign exchange transactions by NRIs and PIOs so that there is support for genuine transactions as against the complicated structure in place today.
Relief for borrowers of MFIs
The RBI has clearly stated that the interest rates on loans given by banks to Micro Finance Institutions should be at a rate not more than 26% in case they want to be classified as priority sector loans. There is also a stringent “qualifying asset” criteria stipulated which will help in ensuring that there is no recurrence of an Andhra Pradesh like scenario repeated.
Net banking and mobile banking
The RBI has shown a strong will to increase the coverage of Internet and mobile based services given by banks and other non-bank entities. Transactions limits have been revised for mobile based transactions, improvement to coverage of NEFT and migrating credit card infrastructure to a system where chip based and pin based cards are expected.
Customers of Urban co-operative banks can now jump on to the internet bandwagon as the RBI has proposed to permit scheduled UCBs to provide internet banking facility provided certain conditions are fulfilled.
Summary
The savings rate hike has brought cheer to the small depositor, but, only time will tell if this cheer is taken away by banks which might pass on the Repo rate hike to the customers directly or even probably use this opportunity to hike their rates by 100 basis points to improve margins. The current scenario suggests that hike in interest rates is likely to take in place within a couple of months.
The RBI recently announced its annual policy for 2011-12. NDTL, MSF, LAF, and so on and so forth, the document has a lot of financial jargon. So what do the policies of the RBI with respect to these jargons mean in real life terms to a common man’s day to day life… Read on to know more.
The common theme of the policy seems to be to strongly rein in inflation amidst rising commodity prices and equally increasing demand.
Savings bank interest rate hiked
This is probably the decision which will have an immediate direct impact on almost every individual. What has been for over 8 years a stagnant rate has today been revised on the higher side. The RBI has increased the interest rate that banks have to pay us on our savings bank deposit to 4% from 3.5%. This will mean you have a little more incentive to keep your money in a savings account. Although, it must be noted that this could be a very temporary measure as the RBI has recently put up a debate for deregulation of these rates. If and when this happens then we could see both positive and negative effects for the common man based on the financial environment.
Repo and Reverse repo rates hiked
The 50 basis points hike in the rates at which RBI lends to banks and at which rate the RBI borrows from banks has meant that banks will have to pay higher interest for the short term funds borrowed from RBI. On a broad spectrum this equal hike in both rates will effectively neutralize the effect. The direct effect on the common man hence will be in the fact that this will help in putting a rein on the ever increasing inflation seen in the last few years.
Bank rate and CRR kept constant
The Bank rate (rate at which RBI lends for long terms to banks) and the Cash Reserve Ratio (amount on money as a percentage of their Net Deposits and Time liabilities) have been kept constant at 6%. This means that the common man can heave a temporary sigh of relief. Though banks may not increase their lending rates for Home loans, Personal loans etc immediately as the rates for these lending are also dependent on the Bank rate and CRR. it could however happen by the end of next month or so.
Changes in Framework for NRIs and PIOs
The RBI as indicated a strong commitment to simplify and streamline procedure relating to foreign exchange transactions by NRIs and PIOs so that there is support for genuine transactions as against the complicated structure in place today.
Relief for borrowers of MFIs
The RBI has clearly stated that the interest rates on loans given by banks to Micro Finance Institutions should be at a rate not more than 26% in case they want to be classified as priority sector loans. There is also a stringent “qualifying asset” criteria stipulated which will help in ensuring that there is no recurrence of an Andhra Pradesh like scenario repeated.
Net banking and mobile banking
The RBI has shown a strong will to increase the coverage of Internet and mobile based services given by banks and other non-bank entities. Transactions limits have been revised for mobile based transactions, improvement to coverage of NEFT and migrating credit card infrastructure to a system where chip based and pin based cards are expected.
Customers of Urban co-operative banks can now jump on to the internet bandwagon as the RBI has proposed to permit scheduled UCBs to provide internet banking facility provided certain conditions are fulfilled.
Summary
The savings rate hike has brought cheer to the small depositor, but, only time will tell if this cheer is taken away by banks which might pass on the Repo rate hike to the customers directly or even probably use this opportunity to hike their rates by 100 basis points to improve margins. The current scenario suggests that hike in interest rates is likely to take in place within a couple of months.