Banks shares in bull grip on measures by Raghuram Rajan

Moneycontrol Bureau

The rally in banks shares was quite steep in early trade Thursday with the BSE Bankex surging 9 percent after new RBI Governor Raghuram Rajan announced a slew of measures to modernise and liberalise the Indian banking system. Country's largest lenders State Bank of India, ICICI Bank, HDFC Bank and Axis Bank soared 4-8 percent while YES Bank and Kotak Mahindra Bank gained around 11 percent. After taking over as the 23rd Governor of the central bank, Raghuram Rajan laid out a detailed road map for his innings in the short term, which he called a "big initial package". The feeble rupee too recovered in early trade as Rajan sparked reform hopes. It gained 97 paise gain in opening. The benchmark 10-year bond yield dropped as much as 22 basis points to 8.17 percent. Meanwhile, the new Governor set up a number of committees for revising and strengthening monetary policy framework, financial stability, financial inclusion, non-performing assets (NPAs) and an outside panel of experts headed by former Governor Bimal Jalan to screen applications for new bank licenses. He also rescheduled by a few days the date for his much-anticipated first monetary policy statement to September 20. Rajan said the new bank licences will be issued around January next year. Apparently reflecting a shift in the approach from his predecessor D Subbarao, who had serious differences with the government of late, Rajan said the primary role of the bank is monetary stability to sustain confidence in the value of the rupee. "Ultimately, this means low and stable expectations of inflation, whether that inflation stems from domestic sources or from changes in the value of the currency, from supply constraints or demand pressures."...but we have two other important mandates; inclusive growth and development, as well as financial stability," he said. He indicated the RBI will take steps to reduce the Statutory Liquidity Ratio (SLR) and introduce greater regulatory and supervisory control over the domestic operations of foreign banks. He promised to give freedom to banks to open branches without prior RBI permission. He stressed on the need to reduce the requirement for banks to invest in government securities in a calibrated way and will push foreign banks to set up wholly owned subsidiaries. Rajan proposes to collect credit data, examine large common exposures among banks and encourage banks to clean up their balance sheets. (With inputs from PTI)