RBI hints at further rate cuts:
Decline in inflation and normal monsoon have allowed the Reserve Bank of India (RBI) to the short-term lending rate, or repo rate, by 25 basis points to 6.25% from 6.50% earlier. Perhaps hinting at further rate cuts, the RBI said that the key to future decisions viz food inflation – has slowed down. As per the RBI, today’s decisions are consistent with the objective of keeping consumer price index (CPI) inflation at 5 per cent by Q4 of 2016-17 and achieving the medium-term target of 4 per cent Consumer Price index within a band of +/- 2 per cent, while supporting growth.
RBI allows banks to classify borrowed securities as SLR
Reserve Bank of India (RBI) has allowed banks to classify government securities borrowed from the central bank in the daily liquidity adjustment facility (LAF) under the statutory liquidity ratio (SLR), making liquidity management for banks easier.
Banks have to currently invest 20.75% of their deposits into government securities which is called SLR. However, such securities borrowed from the central bank under the daily LAF were not counted as SLR. Bankers feel that the move will make liquidity management for banks simpler. This means that banks can now choose not to buy excess securities if they think rates are going to fall and rather borrow it from the RBI. Banks which see a temporary surge in their deposits could also use this facility, say the experts.
Banks have to also maintain 10% of their SLR requirements in high quality liquid assets which include government securities, cash and some highly rated debt, under the Basel III regime which will fully kick in by April 2019. With borrowed SLR securities also being considered as SLR this burden on banks will also lessen.
RBI relaxes norms for foreign funds in startups, financial companies
The RBI on Thursday relaxed foreign investment norms in financial services firms, startups and in investments by foreign regulated capital investors.
The RBI has allowed 100% foreign investment through automatic route in financial services other than banks or insurance companies. These companies must be overseen by a financial services regulator including the RBI, Sebi, Insurance Regulatory and Development Authority of India, Pension Fund Regulatory and Development Authority and the and the National Housing Bank. When it comes to financing startups, the RBI has said that foreign venture capital investors (FVCIs) registered with Sebi can invest in equity or equity-linked instruments or debt instruments issued by an Indian ‘startup’ irrespective of the sector in which the startup is engaged.
According to the RBI, a startup will mean an entity (private limited company or a registered partnership firm or a limited liability partnership) incorporated or registered in India not prior to five years with an annual turnover not exceeding Rs 25 crore in any preceding financial year, working towards innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property and satisfying certain conditions.