RBI to announce roadmap likely on licence, holding companies, foreign banks
The final guidelines for these initiatives might be announced within the next quarter. These developments will have significant repercussions for players and could change the dynamics of the banking sector in India.
The Reserve Bank of India (RBI) is expected to announce roadmaps for significant policy initiatives like the licensing guidelines for new banks, bank holding companies and entry of foreign banks in addition to strengthening financial market infrastructure during its monetary policy review on Tuesday.The final guidelines for these initiatives might be announced within the next quarter. These developments will have significant repercussions for players and could change the dynamics of the banking sector in India.
On the macro side, the RBI has a tough task ahead balancing growth and inflationary pressures. While some might argue that the central bank has been behind the curve in fighting inflation and should have taken a more hawkish stance, the calibrated approach seems about right considering the growth, inflation and liquidity pressures faced.
The IIP numbers have been muted from November 2010 to February 2011 and raise a serious concern that the growth may be derailed or fall below the projected 8.6% in the last fiscal and sub 8% in this fiscal.
On the other hand the central bank is faced with persistently high inflation which has not moderated despite the good monsoon and has now spread to other commodities.
Non-food inflation has been above 20% since September 2010, whereas food inflation has consistently been in double digits since January 2010 and doesn’t seem like slowing It seems highly unlikely that RBI will stop or pause hiking the benchmark rates or might go for a larger quantum of hike.
A 25 basis points hike in both repo and reverse repo rates are expected with mid-policy hikes when required.
Overall, the RBI has indicated a stronger stance on managing inflation with hardening of interest rates despite the slowdown in growth and we might see the benchmark rates being increased by 100 basis points over the current financial year and the policy will be a fine balance between inflation and growth with inflation control being the priority.
Parekh is partner and national leader, Ernst & Young. Views are personal.