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

Free food grains for 81.35 cr beneficiaries for five years

The central government will provide free food grains to about 81.35 crore beneficiaries under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) for a period of five years with effect from January 1, 2024, the cabinet decided on Wednesday. Terming it as a “historic decision”, a

“I wrote ‘Survival at Stake’ to provide food for thought about solutions”

Survival at Stake: How Our Treatment of Animals Is Key to Human Existence By Poorva Joshipura HarperCollins, 328 pages, Rs 499 With science now recognising animal consciousness, intelligence, emotion, and even morality, there must rise an awareness of

‘Bon Voyage’ through the Arctic: Exploring new horizons for India

India`s tryst with trade through the Arctic regions, including the Northern Sea Routes (NSR), has become an impact-making endeavor recently. The Arctic of yore is now a pivot – point of geopolitics, of climate change discussions, and for economic opportunities; 40% of oil and gas reserves said to be

Demystifying Contemporary Finance Theory and other lessons in investment

Investing Decoded: Simple Path To Building A Portfolio In Millions By Anirudh Rathore Penguin India, 320 pages, Rs 499

Deepfake: India to prepare four-point action plan

Deepfake has emerged as a serious threat to democracy and social institutions across the world. Propagation of deepfake content via social media platforms has aggravated this challenge. Ministry of Electronics and Information Technology (MeitY) has, from time to time, advised social media in

Mumbai traffic: Let’s use some simple math

Two level of roads not enough, BMC to have triple traffic jams through underground junctions There is no shortage of short-sighted traffic experts who believe that creating more vertical space (either above or below the level) in already overcrowded and congested cities will be cou

Visionary Talk: Amitabh Gupta, Pune Police Commissioner with Kailashnath Adhikari, MD, Governance Now


Archives

Current Issue

Opinion

Facebook Twitter Google Plus Linkedin Subscribe Newsletter

Twitter