Repo rate increased to 6.5%

Monetary Policy of RBI dated 07.02 23

My views

 How much of Repo rate increase will be  transmitted to borrowers:
The bankers will be in a dilemma. They know that repo is at its maximum or near its maximum and then a pause for atleast two MPCs after that (4 months). 

1. So they may not like to hike deposit rates beyond limited level say 10-15 bps in select maturities upto 1-2 years.

2. At the same time, growth oriented/ potential  lending segments offer tremendous scope for transmission of repo rates, in full, to the new borrowers.

 (personal, cards, home, auto loans in retail and A/BBB rated corporates/sound BB/unrated well collateralised firms/ corporates can be the target segments)

So I expect the average deposit rates to go up  by 10 bps in the 6mths - 2 years buckets and average lending rate to go up by 15 bps in retail and corporates/msmes rated/unrated as mentioned above

 Regulatory policy changes 
1. The proposed lending and borrowing in G-Sec looks like the PSLC arrangement prevalent in the PSL market where banks buy and sell to achieve their PSL shortfall/excess. At present all PSBs and most of the PVSBs hold SLR in the range of 25-27%. So unlike the active trade in PSLC market, the volumes in the G Sec lending/borrowing market may be limited. Banks may still prefer outright sale/purchase route in G-Sec only till the current price curve change.

2. Replacing penal interest with penal charges and not adding it to the outstanding are welcome moves as they brings transparency to the borrowers and reduce hidden costs.

3. Introducing *UPI for inbound travellers* is an excellent move. The increase in volume will help increase conversion into indian rupees through banks more, which might help reduction in money in circulation to a limited extent.

4. Adding insurance on invoices discounted under TReDS is a welcome but the success depends on the margin available to seller of the goods/services, who originates the TReDS transaction. 

 Secondary market for bills under TReDS is bound to evince lot of interest.

The other two announcements may have to be watched for finer details.

Regards 

V. Viswanathan 
CGM Retd e-SBH 
Mobile 7032651003

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