RBI to stay on hold until 2016-end, says Nomura

Reserve Bank is likely to hold the pause button until the end of this year, largely owing to inflationary pressures, a Nomura report has said.
However, domestic ratings agency India Ratings has said the central bank will deliver another rate cut of 0.25 per cent this fiscal.
Nomura in a research note today said that it "expects RBI to stand pat until end-2016, as we do not see inflation undershooting 5 per cent on a sustained basis as the cyclical factors driving disinflation (oil price falls, a slowdown in rural wage growth and the large negative output gap) are behind us."

Though in its forward guidance, RBI had said the stance of monetary policy will remain accommodative, the Japanese brokerage firm expects rates to be on hold until year end.
Reserve Bank yesterday cut the key interest rate by 0.25 per cent and introduced a host of measures to smoothen liquidity supply so that banks can lend to the productive sectors and indicated accommodative stance going ahead.
Meanwhile, India Ratings in a note said: "We expect RBI to cut the policy rate by another 0.25 per cent in FY17."

The agency said the move on liquidity will lead to an ease in the situation and the narrowing of rate corridor will lead to a decrease in borrowing costs as banks with surplus funds will be able to earn higher returns on funds parked with RBI and pass it on to borrowers.

The move to reduce the minimum daily maintenance of cash reserve ratio to 90 per cent of the 4 per cent of deposits will infuse up to Rs 20,000 crore into the system.
Meanwhile, Nomura said rural wages, which drive the cost of production, are more important, and they have been stabilising for a year now.
Moreover one of the key upside risk to headline CPI inflation would be the full implementation of the Seventh Pay Commission recommendations, it added.
"We estimate this could push up average CPI inflation to 5.6 per cent YoY in FY17 versus 4.9 per cent in FY16," it said.

As per the report, inflation is unlikely to undershoot RBI's target of 5 per cent for March and the chances of moving towards 4 per cent by March are very low.
The focus of the recommendations is on broadening of the
current framework to include all 'places of business' - to be defined as 'Banking Outlets' - which are at fixed point locations and bring them on par with branches and capture their presence in our database.
As for Payments Banks, the panel expects that these entities, by virtue of already having a large network of their stores/offices and available technology, would be able to render banking services, as BCs, and banks will be looking to tie up with these entities to scale up their outreach.

Recently, approvals have been given for 11 Payment Banks, including Department of Post and 3 telecom companies, which are, inter alia, allowed to become BCs of other banks.
In the second phase, the report said, a new data system should be devised which is capable of capturing the locations and transactions carried out by all banking outlets including mobile BCs and non-fixed locations and services rendered through the 'hub and spoke' models which will aid in capturing the degree and level of financial inclusion and will be useful for future policy reviews.
"The data needs to be GIS mapped to enable getting a complete picture of banked and unbanked centres on the country's map at all times" it said.

With a view to facilitating financial inclusion and providing operational flexibility on the choice of delivery channel, RBI it was considered necessary to redefine branches and permissible methods of outreach keeping in mind the various attributes of the banks and the types of services that are sought to be provided.
Accordingly an Internal Working group, headed by Lily Vadera (Chief General Manager, Department of Banking Regulation) was constituted for the purpose.