FinMin doubtful over use of overseas funds by financial institutions

The ministry has directed RBI to slash CRR and SLR so as to make the refinance facility of state-run financial institutions an attractive option

GN Bureau | October 3, 2013



Public sector financial institutions, which were recently given the approval to raise funds abroad, may not be able to utilize these funds completely, the finance ministry has said.

According to a news report in Mint, the finance ministry is concerned that the move, which was announced in August to finance current account deficit (CAD) and prevent the rupee from falling further, may boomerang. The ministry is worried that the high-cost funds raised by state-run financial companies through sale of quasi-sovereign bonds in foreign markets might remain unutilised. It has thus, decided to take some precautionary measures as India infrastructure finance company limited (IIFCL) plans to raise funds abroad.

The ministry has asked the Reserve Bank of India (RBI) to slash the cash reserve ratio (portion of deposits banks need to keep with the RBI) and statutory liquidity ratio (amount of ready cash and near cash balance which banks are required to keep with themselves) so that banks could make use of the IIFCL’s refinance window. At present, the apex bank has fixed the CRR at 4 percent and SLR at 23 percent.

"Once IIFCL raises the funds, it has to deploy (them). How will it use these funds? It will need banks to use these funds through the refinance window," a government official said.

"But banks will not be interested to use these funds if they have to set aside funds to meet the CRR and SLR requirements. Investing funds in government securities will give banks a lower interest rate compared to the return that they would have got by onward lending," the official added.

The ministry’s demand, the official said, has been made along the lines of the relaxation given to banks which avail refinance from small industries development bank of India (Sidbi) and the national bank for agriculture and rural development (Nabard). The amount of refinance from these two financial institutions does not add up to the banks’ liabilities and it is not taken into account while banks set aside the CRR and SLR amounts. This is why banks consider refinance an attractive option.

In August, finance minister P Chidambaram had announced that state-run financial institutions will be allowed to sell quasi-sovereign bonds so as to bring in capital flows that can be used to finance the country’s CAD. Recently, the RBI had announced that the CAD in the first quarter of the current fiscal stood at 4.9 percent.

Indian railway finance corporation limited (IRFCL), power finance corporation limited and IIFCL have been asked to raise $4 billion from the overseas markets.
 

Comments

 

Other News

Growing Up as a Multilinguist

Being and Becoming Multilingual: Some Narratives Edited by Rajesh Sachdeva and Rama Kant Agnihotri

Mumbai civil body refutes allegations of scam in tenement scheme

The BrihanMumbai municipal corporation (BMC) has rejected the Congress accusations of financial irregularities worth Rs 8,000 crore—9,000 croe in awarding contracts for getting project-affected people (PAP) tenements on private land.    BMC has said that it implements vital p

Sedition law: Can it have a place in democracy?

Does the concept of sedition have a place in modern democracies? This question became more relevant when the apex court recently put the country`s colonial-era sedition law on abeyance stating that there is a “requirement to balance… security interests and integrity of the State… and th

Not just another Manto anthology

The Collected Stories of Saadat Hasan Manto: Volume 1: Bombay and Poona Translated by Nasreen Rehman Aleph Book Company, 548 pages, Rs 999 There are writers, there are writers’ writers, and then there are readers’ writers. Saadat Hasan Mant

These tribal women may be illiterate but are successful entrepreneurs

Meet Promila Krishna, 39, Lalita Nayak, 40, Parbati Gadba, 42, Sanadei Dhuruwa, 39, and Nabita Barika, 41, of Kundra block in Odisha’s Koraput district. Except for Promila who is a matriculate, others haven’t attended school beyond the elementary level. However, while introducing themselves to

Women in workforce: Despite policy support, why it is declining

Michelle Obama once said, “No country can ever truly flourish if it stifles the potential of its women and deprives itself of the contributions of half of its citizens.” That should be so obvious, but it is not, and countries keep depriving themselves of the contributions of half of their popul

Visionary Talk: Arvind Sawant, Member of Parliament with Kailashnath Adhikari, MD, Governance Now


Archives

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter