With the monetary policy review just a week away and the banking sector reeling under a host of issues, the Reserve Bank of India (RBI) has restarted consultations with top bankers and India Inc honchos on the direction that the central bank has to take in the coming months. Top RBI officials met industry representatives on Tuesday to understand the challenges and issues in the wake of soaring non-performing assets (NPAs) and weak balance sheets. "RBI officials including Governor and Deputy Governor are expected to meet bankers in the coming days. RBI used to have these interactions earlier but stopped even before the current Governor took charge. Now it has been resumed," said a banking source. The Monetary policy committee of the RBI will meet on April 4 and 5 to finalise the policy stance. The banking sector is passing through a difficult but crucial phase with stressed asset resolution remaining a big headache for bankers. The Rs 13,000 crore Punjab National Bank has exposed more chinks in the armour of public sector banks. The litany of woes of the banking sector is set to increase in the fourth quarter ending March with mounting losses in the wake of high NPAs and the rise in bond yields. NPAs which crossed the Rs 8 lakh crore mark are set to rise further. "Bankers are expected to ask for some concessions to offset the losses due to rise in bond yields. The scrapping of loan recast schemes has also put banks in a quandary,. There could be demands for relaxation in provisioning norms. Another issue is the slow progress in stressed assets resolution," said a banking source. The RBI top brass is meeting bankers and India Inc honchos days after Governor spoke his mind for the first time after the Punjab National Bank scam broke out. Patel had then made it clear that the RBI’s legal powers to supervise and regulate PSU banks are also constrained – it cannot remove public sector banks' directors or management, who are appointed by the government of India (GoI), nor can it force a merger or trigger the liquidation of a PSU bank. The RBI has also limited legal authority to hold PSB boards accountable regarding strategic direction, risk profiles, assessment of management, and compensation, Patel said quoting the Detailed Assessment Report (DAR) on the Basel Core Principles (BCP). The government has already retaliated against the Governer's observations. Interest rates are showing signs of an upward movement. A quick look at some of the high frequency datapoints suggests reversal in rate cycle, Kotak Securities said in a report. CP and CD rates have moved up by 90 bps and 30 bps respectively so far in the current year. Also, the system-level liquidity has shrunk drastically since September 2017. "While there is typical seasonality at play during March, we have seen banks increasing their MCLR and term deposit rates in recent months. SBI increased retail term deposit rates by up to 50 bps and MCLR rates by up to 20 bps effective March 2018. Starting January 2018, banks also need to maintain higher liquidity buffers to comply with increased LCR requirements," it said.
