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Last Updated : Feb 18, 2019 03:25 PM IST | Source: Moneycontrol.com

FM addresses RBI Board, pitches for bank mergers

Brushing aside concerns on budget numbers, Jaitley said that the government factors in “all costs” while preparing the budget

Moneycontrol News @moneycontrolcom
Arun Jaitley_Shaktikanta Das
Arun Jaitley_Shaktikanta Das

Union finance minister, Arun Jaitley, addressed the customary post-budget board meeting of the Reserve Bank of India (RBI) on February 18 and discussed “issues related to fiscal policy decisions taken by the government”.

Addressing media after the meeting, Jaitley said that the meeting was an “interaction on interim budget and overall economy”.

Concerns on budget estimates

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Brushing aside concerns on budget numbers, Jaitley said that the government factors in “all costs” while preparing the budget.

“Our experience in the last five years is that there has reasonably been high growth as far as revenues are concerned… The transmission through direct benefit transfer (DBT) has helped. My own experience is that when we announce a scheme, we fix a target, we factor in all costs, revenue growth,” Jaitley said.

Analysts have anticipated that the government may find it difficult to maintain its fiscal deficit at 3.4 percent after announcing two fiscal measures for rural and unorganised sector.

The government had announced during the interim budget 2019-20 that it would transfer direct income of Rs 6,000 a year in the bank account of every farmer (household) who owns less than two hectares of land. The scheme, named PM-KISAN or PM-Kisan Samman Nidhi, was allocated Rs 75,000 crore for 2019-20 and Rs 20,000 for December to March period of 2018-19.

“While the government's growth assumptions appear reasonable, we think the government will continue to face challenges in meeting its fiscal targets, primarily due to structural increases in spending and difficulties in raising revenue further,” Gene Fang, managing director, Moody investor’s Sovereign Risk Group told news agency PTI.

During the budget speech, then-interim finance minister, Piyush Goyal, also expanded fiscal deficit target from 3.3 percent to 3.4 percent for 2018-19.

Centre has also proposed to exempt individuals with taxable income less than Rs five lakh per annum from income tax from 2019-20. This has also raised concerns over the government’s revenue generation capability.

Fang told PTI that the 3.4 percent fiscal deficit target for the year ending March 2020 is wider than expected, largely driven by increased spending to provide income support to small farmers and tax rebates ahead of the general elections in April-May this year.

RBI guv to meet bankers

Shaktikanta Das, governor, RBI said that he would meet chiefs of banks on February 21 to discuss the transmission of rate cut to customers.

“The transmission of rate cut is very important, especially when the Central bank announces a rate cut… I will meet the chiefs and managing directors of banks and see what needs to be done,” he said.

Despite the RBI cutting policy rate by 25 bps in its February monetary policy meeting, banks have cut their rates by five bps.

Sector watchers have opined that banks are reluctant to cut rates due to pace of credit growth being faster than pace of deposits. As credit growth is expected to go north in the coming months, rate cut is unlikely by banks.

On February 18, SBI chairman, Rajnish Kumar, told CNBC TV18 in an interview that there was “no headroom” to cut deposit rate, consequently deterring it to cut base rate.

Experts believe that as the hike in deposit rate has been more aggressive by private sector banks, giving them higher traction for loans, public sector banks have no room to cut rate.

Echoing similar sentiment, Kumar said that the issue (with SBI) was that they need to cut the rate on the deposit if they need to cut the MCLR, which was “not possible” as other banks presently offer significantly higher interest rates on deposits.

“These would need to get slashed first in order for SBI to react,” he said.

The RBI had cut repo rate—the rate at which banks borrow funds from the apex bank—by 25 bps to come down to 6.25 percent. This was the first cut after August 2017.

Interim dividend on cards for govt?

Amid reports that the government had requested for an interim dividend of Rs 28,000 crore from the RBI for 2018-19, the governor said that it was “difficult to pre-empt” the board’s decision.

“I cannot pre-judge and pre-empt what the board will decide (on the interim dividend). As soon as the board decides, we will inform,” Das said.

Media reports have suggested that the government decided to demand the amount on the basis of the Bank’s audited results for first six months.

The decision on dividend could be declared later in the day when the board meeting concludes.

PSB merger

Pitching once again for merger of public sector banks, Jaitley said that India needs “fewer but mega PSBs”.

“I think, India needs fewer and mega public sector banks which are strong because in every sense, from borrowing rates to optimum utilisation of resources, the economies of scale, as far as banking sector are concerned, are of great help,” he said.

So far, India has seen merger of one public sector bank, State Bank of India with its sister branches, and is on the cusp of witnessing another, three-way, bank merger of Vijaya Bank, Bank of Baroda and Dena Bank.

The cabinet had approved merger of the three banks last year which will come into effect from April 1, 2019. The amalgamation would create second largest PSB entity in India with a combined business of ₹ 14.82 lakh crore.

There are 21 PSBs in India right now, which will come down to 18 after the three-way merger.

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First Published on Feb 18, 2019 03:25 pm
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