RBI allows banks to invest up to 10% of REITs', InvITs' capital

MUMBAI: In a move to boost spending on infrastructure, the RBI on Tuesday allowed banks to invest up to 10 per cent of the unit capital of single Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).

"It has been decided to allow banks to participate in REITs and InvITs within the overall ceiling of 20 per cent of their net worth permitted for direct investments in shares, convertible bonds/debentures, units of equity-oriented mutual funds and exposures to venture capital funds (VCFs)," a Reserve Bank of India notification said.

The apex bank said the permission was subject to the condition that banks will not invest more than 10 per cent of the unit capital of a REIT or an InvIT.

"Banks should put in place a Board approved policy on exposures to REITs/ InvITs which lays down an internal limit on such investments within the overall exposure limits in respect of the real estate sector and infrastructure sector," the notification said.

Banks will also have to ensure adherence to the prudential guidelines on equity investments, classification and valuation of investment portfolio, Basel III Capital requirements for commercial real estate exposures and large exposure framework, it added.

In its first bi-monthly monetary policy review of the fiscal presented on April 6, the RBI had permitted banks to invest in REITs and InvITs in a measure designed to revive stalled infrastructure projects.

Source: https://goo.gl/1ULpd2

Little Room for Further Cuts in Lending Rates, Say Banks

“There is still scope for lending rates to come down since our policy rates have come down by 175 basis points since January 2015 while the weighted average lending rates have fallen by 80 to 85 basis points,” said Urjit Patel, RBI governor.


MUMBAI: RBI governor Urjit Patel has said that banks would be in a position to bring down lending rates further as full transmission of rate cuts have not yet taken place. However, banks say that given the hawkish stance of the central bank, there is little room to bring down rates.

Announcing the policy on Wednesday, RBI governor Urjit Patel said, “There is still scope for lending rates to come down since our policy rates have come down by 175 basis points since January 2015 while the weighted average lending rates have fallen by 80 to 85 basis points.” (100 bps = 1 percentage point). Another deputy governor Viral Acharya said that rates are coming down because banks are flush with deposits, thanks to demonetization. However, several bankers including Arundhati Bhattacharya, chairman, SBI, and Chanda Kochhar, MD & CEO, ICICI Bank, indicated that the scope for cuts was limited as banks have already brought down rates.

Announcing the decision to hold the reverse repo rate at 5.75%, the RBI said that the monetary policy committee is of the view that the persistence of inflation, excluding food and fuel, could set a floor on further downward movements in headline inflation and trigger second-order effects, although consumer price inflation was expected to be contained at 5% in FY17.

According to Bhattacharya, the governor himself has pointed out the solution to improve transmission of rates — resolution of non-performing assets, improving capital position of banks and making small savings rates market-driven. “Given the general environment of uncertainty both domestically and abroad, the RBI decision to maintain status quo was on expected lines,” said Bhattacharya.

Meanwhile, in the bond markets, the yield on the benchmark 10-year yield hardened to 6.75% from 6.43% on Tuesday. Since for most of the lenders, the 10-year gilt yield is one of the most important factors in determining their lending rates, bond dealers and analysts are not expecting any more drop in lending rates.

According to R P Marathe, MD & CEO, Bank of Maharashtra, the bank has been ensuring transmission of policy rates by passing on the maximum benefit to its customers. “We have reduced the marginal cost of lending rate (MCLR) by 20 basis points in February, resulted in a cumulative 90-basis-point cut in the last five months. So, banks are already doing their bit aided by easy liquidity in the system. The future course on MCLR will be purely governed by trends in underlying parameters like the marginal cost of funds, negative carry and cost of operations,” said Marathe.

Some bankers, however, felt that there was scope to reduce rates. “The shift in stance to neutral from accommodative with a status quo on policy rates should allow the RBI, going forward, flexibility to ease rates to push for stronger growth, amid government’s fiscal rectitude,” said Rana Kapoor, MD & CEO, Yes Bank.


Source: https://goo.gl/Po1hed