Informist, Thursday, Oct. 10, 2024
By Aaryan Khanna and Pratiksha
NEW DELHI – The Reserve Bank of India's proposed Liquidity Coverage Ratio guidelines will likely dampen credit growth if banks are not able to raise additional deposits, according to UCO Bank Executive Director Rajendra Kumar Saboo. The additional deposits will have to be used to add High-Quality Liquid Assets, a category of instruments that includes government bonds, Saboo said.
"We have to maintain a certain level of LCR. We have to see that we have enough HQLA (High-Quality Liquid Assets) in our portfolio so as to cover the outgoing funds in the next 30 days," Saboo told Informist in an interview. "If we (banks) are not able to raise more funds, then (we) have to go for muted credit growth," Saboo, who oversees UCO Bank's treasury, said.
With deposit growth trailing the rise in demand for credit, the government and the RBI have been calling on banks to mobilise retail deposits. At the same time, new regulations proposed by the central bank such as those requiring an additional run-off factor for bank accounts that have internet and mobile banking facilities and those related to project finance could impact banks' capacity to lend.
As per the latest RBI data, banks' loans were up 13.0% on year as on Sep 20, while deposits grew at a slower clip of 11.5%. UCO Bank’s loan and deposit growth as at the end of the September quarter were at 18.6% and 10.8% on year respectively, according to provisional figures.
"On the LCR (Liquidity Coverage Ratio) front, I think the proposed norms by RBI are under draft and if those are actually implemented from the start of 2025-26 (Apr-Mar), it will impact the LCR position of the banks, no doubt about it. So generally, it is an opinion that around 8-10% impact will be there on the LCR if the norms are implemented in their present state," Saboo said.
Banks have to maintain High-Quality Liquid Assets worth 100% of their expected outflows for the next 30 days as part of current liquidity coverage ratio guidelines. With the tweaks that the RBI has proposed, the calculation of expected outflows will increase, pushing up the requirement for High-Quality Liquid Assets. Banks typically maintain a liquidity coverage ratio that is around 20% in excess of the requirement.
While banks may not face an immediate crunch for High-Quality Liquid Assets on account of holding government bonds beyond what is required by Statutory Liquidity Ratio norms, the returns these assets generate are likely to fall in the coming months as interest rates decline, especially with the RBI having changed its stance to 'neutral' from 'withdrawal of accommodation' on Wednesday.
"...the HQLA will bring them lower returns. So, that will have an impact (on return on assets)," Saboo said. "And due to the softening of the yields also, the return on incremental investments will be a little bit down." UCO Bank's return-on-assets edged up to 0.70% on an annualised basis in the June quarter from 0.69% in Jan-Mar. The bank had an average daily Liquidity Coverage Ratio of 136.1% in Apr-Jun.
ALL GOOD ON FX FRONT
With the Indian rupee displaying extraordinary levels of stability over the past year – the exchange rate against the US dollar has moved by just 10 paise on average on a daily basis compared to 22 paise in the preceding 12 months – Saboo expects the Indian currency to keep trading between 83-84 a dollar for the rest of FY25.
However, there is a risk of the 84-per-dollar mark being breached. "There is strong support around 84 (a dollar) and that has been maintained for the last few months. So, if it breaches, then of course there will be some movement," he said.
The low exchange rate volatility for a prolonged period has changed the behaviour of traders, with hedging activity noticeably lower, Saboo said. In terms of the impact on exporters and importers, the banker thinks the reduced exchange rate volatility can only benefit them.
"I think maybe high volatility in the forex market will have its own impact on exporters and importers. So, it is to the benefit of the players that the volatility is controlled," he said. "I don't think it has any negative impact basically. It is a stable market and a stable market will always be beneficial for exporters and importers to take a call about their positions."
On Wednesday, shares of UCO Bank ended 0.6% lower at INR 45.50 on the National Stock Exchange.
End
US$1 = INR 83.97
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© Informist Media Pvt. Ltd. 2024. All rights reserved.
Informist, Thursday, Oct. 10, 2024
By Aaryan Khanna and Pratiksha
NEW DELHI – The Reserve Bank of India's proposed Liquidity Coverage Ratio guidelines will likely dampen credit growth if banks are not able to raise additional deposits, according to UCO Bank Executive Director Rajendra Kumar Saboo. The additional deposits will have to be used to add High-Quality Liquid Assets, a category of instruments that includes government bonds, Saboo said.
"We have to maintain a certain level of LCR. We have to see that we have enough HQLA (High-Quality Liquid Assets) in our portfolio so as to cover the outgoing funds in the next 30 days," Saboo told Informist in an interview. "If we (banks) are not able to raise more funds, then (we) have to go for muted credit growth," Saboo, who oversees UCO Bank's treasury, said.
With deposit growth trailing the rise in demand for credit, the government and the RBI have been calling on banks to mobilise retail deposits. At the same time, new regulations proposed by the central bank such as those requiring an additional run-off factor for bank accounts that have internet and mobile banking facilities and those related to project finance could impact banks' capacity to lend.
As per the latest RBI data, banks' loans were up 13.0% on year as on Sep 20, while deposits grew at a slower clip of 11.5%. UCO Bank’s loan and deposit growth as at the end of the September quarter were at 18.6% and 10.8% on year respectively, according to provisional figures.
"On the LCR (Liquidity Coverage Ratio) front, I think the proposed norms by RBI are under draft and if those are actually implemented from the start of 2025-26 (Apr-Mar), it will impact the LCR position of the banks, no doubt about it. So generally, it is an opinion that around 8-10% impact will be there on the LCR if the norms are implemented in their present state," Saboo said.
Banks have to maintain High-Quality Liquid Assets worth 100% of their expected outflows for the next 30 days as part of current liquidity coverage ratio guidelines. With the tweaks that the RBI has proposed, the calculation of expected outflows will increase, pushing up the requirement for High-Quality Liquid Assets. Banks typically maintain a liquidity coverage ratio that is around 20% in excess of the requirement.
While banks may not face an immediate crunch for High-Quality Liquid Assets on account of holding government bonds beyond what is required by Statutory Liquidity Ratio norms, the returns these assets generate are likely to fall in the coming months as interest rates decline, especially with the RBI having changed its stance to 'neutral' from 'withdrawal of accommodation' on Wednesday.
"...the HQLA will bring them lower returns. So, that will have an impact (on return on assets)," Saboo said. "And due to the softening of the yields also, the return on incremental investments will be a little bit down." UCO Bank's return-on-assets edged up to 0.70% on an annualised basis in the June quarter from 0.69% in Jan-Mar. The bank had an average daily Liquidity Coverage Ratio of 136.1% in Apr-Jun.
ALL GOOD ON FX FRONT
With the Indian rupee displaying extraordinary levels of stability over the past year – the exchange rate against the US dollar has moved by just 10 paise on average on a daily basis compared to 22 paise in the preceding 12 months – Saboo expects the Indian currency to keep trading between 83-84 a dollar for the rest of FY25.
However, there is a risk of the 84-per-dollar mark being breached. "There is strong support around 84 (a dollar) and that has been maintained for the last few months. So, if it breaches, then of course there will be some movement," he said.
The low exchange rate volatility for a prolonged period has changed the behaviour of traders, with hedging activity noticeably lower, Saboo said. In terms of the impact on exporters and importers, the banker thinks the reduced exchange rate volatility can only benefit them.
"I think maybe high volatility in the forex market will have its own impact on exporters and importers. So, it is to the benefit of the players that the volatility is controlled," he said. "I don't think it has any negative impact basically. It is a stable market and a stable market will always be beneficial for exporters and importers to take a call about their positions."
On Wednesday, shares of UCO Bank ended 0.6% lower at INR 45.50 on the National Stock Exchange.
End
US$1 = INR 83.97
Informist Media Tel +91 (11) 4220-1000
Send comments to feedback@informistmedia.com
© Informist Media Pvt. Ltd. 2024. All rights reserved.