Mumbai: The Reserve Bank of India (RBI) today cut the repo rate by 25 basis points (0.25%) making this the third consecutive rate cut in calendar year 2019. It also shifted its policy stance from 'neutral' to 'accommodative'. The past two rate cuts have seen little transmission. The RBI’s statement noted that the 0.5% cumulative cut in February and April resulted in only 0.21% average reduction on fresh rupee loans. On past loans, the weighted average lending rate actually went up by 4 basis points (0.04%). Gaurav Gupta, CEO, Myloancare, attributed the faulty transmission to the ongoing crisis in Non Banking Finance Companies and Housing Finance Companies and its impact on debt markets.
NEFT and RTGS charges on Banks to be waived
But what should bring cheer to customers is RBI's decision to waive charges related to NEFT and RTGS (for money transfers) that it levies on banks and ensure that the cuts are passed on to customers. This part of its overall push to increase electronic payments. As per the release by RBI, the regulator will issue instructions to this effect in a week's time.
Forex trading platform for retail investors
The RBI announced that a platform for buying foreign exchange at market prices for individuals and Small and Medium Enterprises (SMEs) is being tested by users. It expects the platform to be operational from August 2019. At present both the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) offer forex derivatives in which retail investors can participate. However ‘spot’ purchases of foreign exchange are not easily facilitated on exchanges. Retail buyers mostly rely on banks and foreign exchange dealers and pay hefty spreads on their forex transactions. A spread is the difference between a buying a selling rate of foreign exchange.
Retail purchases of state development loans
At present, retail investors are able to invest in Government of India securities as part of RBI’s attempt to deepen the government bond market. Brokers such as Zerodha have already been offering this facility. The RBI proposed to extend this facility to State Development Loans, effectively the bonds of Indian states. Such SDLs can carry a slightly higher yield than governments of India bonds and carry extremely low risk.
The RBI also proposed to constitute a committee to examine ATM charges and fees given the growing usage and increasing demand to change the ATM charges and fees. The Committee is expected to submit its recommendations within two months of its first meeting and the RBI will announce the composition of the committee in a week's time.
