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S&P upgrades India rating on economic resilience, sustained fiscal consolidation
S&P upgrades India rating on economic resilience, sustained fiscal consolidation

Yahoo

time5 days ago

  • Business
  • Yahoo

S&P upgrades India rating on economic resilience, sustained fiscal consolidation

By Swati Bhat MUMBAI (Reuters) -Credit rating agency S&P Global upgraded India's long-term unsolicited sovereign credit ratings to "BBB" from "BBB-" on Thursday, citing economic resilience and sustained fiscal consolidation. The agency had revised the outlook on India's rating in May last year to positive from stable on robust growth and improved quality of government expenditure. "The upgrade of India reflects its buoyant economic growth, against the backdrop of an enhanced monetary policy environment that anchors inflationary expectations," the rating agency said in a statement. "Together with the government's commitment to fiscal consolidation and efforts to improve spending quality, we believe these factors have coalesced to benefit credit metrics," it added. The Indian rupee strengthened to 87.58 against the dollar from 87.66, while the benchmark 10-year bond yield fell 7 basis points to 6.38% soon after the announcement. The rating agency also revised its transfer and convertibility assessment to 'A-' from 'BBB+', it said. S&P may lower the country's ratings if it sees an erosion of political commitment to consolidate public finances, while downward pressure could also come from economic growth slowing materially on a structural basis such that it undermines fiscal sustainability, it said. Ratings could be further raised if fiscal deficits narrow meaningfully such that the net change in general government debt falls below 6% of GDP on a structural basis, it added. Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data

Exclusive-India's central bank to use cash reserve ratio as active liquidity tool, says source
Exclusive-India's central bank to use cash reserve ratio as active liquidity tool, says source

Yahoo

time11-06-2025

  • Business
  • Yahoo

Exclusive-India's central bank to use cash reserve ratio as active liquidity tool, says source

By Siddhi Nayak and Swati Bhat MUMBAI (Reuters) -India's central bank plans to use the cash reserve ratio more frequently to manage liquidity and aid policy transmission, rather than deploying it only during extreme cash swings, a source told Reuters on Wednesday. The person aware of the Reserve Bank of India's thinking declined to be identified because they are not authorised to speak to the media. The RBI did not reply to an email seeking comment. The central bank last week announced a surprise 100-basis-points reduction in CRR, the portion of deposits banks must park with the RBI, in four equal tranches, taking take it down to 3%. The move will release 2.5 trillion rupees ($29.25 billion) into the banking system. RBI governor Sanjay Malhotra had then said that the regulator was "comfortable" with a 3% CRR, but did not give other details. With banks' total deposit base having grown in recent years, the need to maintain the CRR at a minimum of 4% to manage crisis situations is no longer seen as necessary, the source said. "CRR is a good tool to have from a liquidity management perspective and the scope goes beyond just an emergency tool, it will be used more often from now," the person said, adding that the ratio could also be raised to absorb a large liquidity influx caused by sustained foreign inflows and is more efficient than conducting multiple open market operations. Between December and May, the RBI injected nearly $100 billion into the banking system via OMOs and FX swaps, its largest such infusion over a similar period. A shift toward managing liquidity via CRR, previously unreported, could reduce the need for bond buys that often distort market yields. ANCHORING RATES A large cash surplus in the banking system had also pushed the weighted average overnight call rate — the operative policy rate — well below the RBI's key repo rate, currently at 5.5%. "The RBI wants the overnight call rate to be around the repo rate, steps will be taken to ensure that happens," the source said, adding that the RBI could start conducting variable rate reverse repo auctions to suck out surplus liquidity as and when required. The source also said the central bank was uncomfortable with the 10-year benchmark yield falling significantly below existing levels. The RBI is currently in the process of drafting a revised liquidity management framework, and existing operations will continue until the new framework is finalised, the source said. ($1 = 85.4790 Indian rupees) Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data

Exclusive-India's central bank to use cash reserve ratio more actively to manage liquidity, says source
Exclusive-India's central bank to use cash reserve ratio more actively to manage liquidity, says source

Yahoo

time11-06-2025

  • Business
  • Yahoo

Exclusive-India's central bank to use cash reserve ratio more actively to manage liquidity, says source

By Siddhi Nayak and Swati Bhat MUMBAI (Reuters) -India's central bank plans to use cash reserve ratio "more often" as a tool to manage liquidity and speed up monetary policy transmission, moving away from the practice of deploying it only in times of extreme cash swings, a source told Reuters on Wednesday. The person aware of the Reserve Bank of India's thinking declined to be identified because they are not authorised to speak to the media. The RBI did not reply to an email seeking comment. In a surprise move on Friday, the Reserve Bank of India announced a 100-basis-points reduction in the CRR to 3%, to be implemented in four equal tranches between September and November, releasing 2.5 trillion rupees ($29.25 billion) into the banking system. ($1 = 85.4790 Indian rupees) Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data

India cenbank may deliver third straight rate cut as inflation undershoots
India cenbank may deliver third straight rate cut as inflation undershoots

Yahoo

time04-06-2025

  • Business
  • Yahoo

India cenbank may deliver third straight rate cut as inflation undershoots

By Swati Bhat MUMBAI (Reuters) - India's central bank is widely expected to deliver a third consecutive rate cut on Friday as muted inflation provides ample space to focus on boosting economic growth further. A strong majority of economists, 53 of 61, in a Reuters poll expect the Reserve Bank of India's monetary policy committee (MPC) to cut the repo rate to 5.75%. Two respondents see a cut of 50 basis points and the remaining six expect no change. "Despite no pressing need for a third successive rate cut on June 6, we expect the MPC to cut - an opportunistic move amid the lower-than-expected inflation outcome and outlook, and retain the stance as 'accommodative'," Barclays economists wrote in a note. "The RBI may be tempted to lower inflation forecasts, but it may be prudent not to," they added. Retail inflation has slowed faster than expected and dropped to a near 6-year low of 3.16% in April. The RBI expects it to average around 4% during the year but many economists expect it to be lower. On the growth front, India's GDP surged 7.4% in the March quarter, much faster than forecasts and driven by construction and manufacturing. Full year growth for 2025 financial year that ended in March is estimated at 6.5% and the RBI expects the pace to be retained in fiscal 2026, though the outlook faces challenges given a global slowdown and U.S. President Donald Trump's tariff uncertainties. "RBI's estimate of neutral real rates is between 1.4% and 1.9%. In an environment of softer global growth, the neutral real rate is likely to be closer to 1.4%," IDFC First Bank chief economist Gaura Sen Gupta wrote. "The risk of overheating of the economy remains low with persistence of a negative output gap as indicated by persistently low core inflation and low current account deficit," she added. Economists and traders expect the RBI to continue focusing on enhancing monetary transmission by keeping system liquidity in a surplus. Since January, the RBI has infused nearly $100 billion into the banking system. "Apart from 25 bps cut in repo rate, there could be some probability of widening of the corridor to 50-basis between repo and SDF (standing deposit facility) rate," said Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank. A sharp fall in India's treasury bill yields indicates that the central bank could widen the policy rate corridor at its meeting, five bond traders said last week. Indian lenders have also urged the central bank to revert to overnight liquidity management operations and sought easier cash reserve requirements, four sources familiar with the matter said. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data

India considers easing bank ownership rules as foreign interest grows
India considers easing bank ownership rules as foreign interest grows

Mint

time03-06-2025

  • Business
  • Mint

India considers easing bank ownership rules as foreign interest grows

Indian central bank reviewing ownership rules for banks Foreign banks eager to tap India's rapid growth, trade deals SMBC's deal for Yes Bank shows foreign interest, RBI flexibility By Ira Dugal and Swati Bhat MUMBAI, June 3 (Reuters) - The Indian banking regulator is signalling possible rule changes ahead that would let foreigners own more of India's banks, spurred by overseas institutions' eagerness for acquisitions and the fast-growing economy's need for more long-term capital. The Reserve Bank of India last month bent its rules to let Japan's Sumitomo Mitsui Banking Corp buy a 20% stake in Yes Bank, and two foreign institutions are vying for a stake in IDBI Bank, highlighting the pressure to ease foreign ownership rules that are among the strictest of any major economy. RBI Governor Sanjay Malhotra told the Times of India last week that the central bank was examining shareholding and licensing rules for banks as part of a broader review. A source familiar with the central bank's thinking said it would be more open to letting regulated financial institutions own bigger stakes, with approvals on a case-by-case basis, and to certain rule changes that could address disincentives for foreign acquisitions. Analysts say foreign banks are keen for deals in India, the world's fastest-growing major economy, especially as it angles for regional trade agreements. Such pacts could open up new opportunities in India for global lenders elsewhere in Asia and the Middle East. "The interest is driven by India's strong economic growth and large under-penetrated market," said Madhav Nair, deputy chairman of the Indian Banks Association. Indian regulators, for their part, worry that India lags other large economies in mobilising banking capital, which will be vital to sustaining rapid economic growth. Alka Anbarasu, associate managing director at Moody's Investors Service, said India will need much more capital for its banking system over the medium term. "Whether this has prompted the regulator to consider bringing in strong international players into the banking system, it would be a good rationale for doing so," she said. While most large global banks from Citibank to HSBC to Standard Chartered have operations in India, they are focused on the more profitable corporate and transaction banking segments, along with trading, rather than bread-and-butter lending. The share of foreign banks in outstanding bank credit in India is less than 4%, central bank data shows. Banking remains one of the most guarded sectors of the Indian economy. While foreigners including portfolio investors can own up to 74%, regulations limit a strategic foreign investor's stake to 15%. Foreign banks are also deterred by a maze of other regulations, including a 26% cap on voting rights and a requirement that any large shareholding by a so-called promoter - a strategic investor with direct influence over management decisions - be sold down to 26% within 15 years. The RBI is open to giving foreign buyers more time to sell down their stake, the source familiar with the bank's thinking said. The source declined to be identified as the deliberations are confidential. The RBI did not respond to an email seeking comment. The source also highlighted the banking regulator's increased openness to case-by-case exemptions from the 15% ownership limit, as offered for the Yes Bank purchase. The $1.58 billion deal was the largest cross-border acquisition ever in India's financial sector. Two foreign investors - Canada's Fairfax Holdings and Emirates NBD - are also contending for a 60% stake in government-owned IDBI Bank. Emirates recently received regulatory approval to set up an Indian subsidiary, making it only the third major foreign bank to do so after Singapore's DBS and State Bank of Mauritius. The decision was prompted by an interest to acquire a majority stake in IDBI Bank, a source familiar with the buyers' thinking said. Emirates NBD declined to comment. Fairfax did not respond to a request for comment. An increase in the 26% cap on voting rights, or in the 15% investment limit, could encourage foreign bank investors, ratings agency Fitch said in a note last week. It believes the RBI's preference is for foreign banks with a strong performance and solid governance to acquire stakes larger than 26% through wholly owned subsidiaries regulated in India. The source familiar with RBI thinking said the limit on voting rights was hard-coded in law and would need to be reviewed by the finance ministry. On regulatory issues under the central bank's purview, the source added, the stance on foreign strategic investors may need to be adjusted, especially given domestic investors' lack of interest in running banks. "Where the long-term capital will come from will have to be thought through," the source said. (Reporting by Ira Dugal and Swati Bhat; Editing by Edmund Klamann)

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