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Below the Views on RBI Monetary Policy by Mr. Shivaji Thapliyal, Head of Research and Lead Analyst, Yes Securities

Comments pertaining to Financial stability

·Unsecured retail lending and loans to NBFCs

“It seems that the RBI is trying to signal that it stands ready to take further steps, if necessary, to moderate unsecured retail lending and over-reliance of NBFCs on bank funding to desired levels if previous steps taken do not achieve the desired impact. It is not exactly known what would be the levels that the RBI regards as appropriate in this regard.”

·Key Fact Statement

“It seems that the RBI is not satisfied with specific banks or NBFCs in this regard. It remains to be seen whether it would lead RBI to take punitive action in this regard.”

·Loan interest rates

“Ever since the margin cap for NBFC-MFIs was removed, the loan interest rates for MFIs stood as de-regulated as for banks. Currently, the RBI has stated it is engaged in constructive discussions but it would be interesting to know what levels of interest rates the RBI regards as appropriate and whether any specific NBFCs or banks would lower such rates for customers.”

·Definition of bulk deposits

“We do not think the change in definition of bulk deposits from the earlier threshold of Rs 20mn changes anything significantly on the ground in terms of the need for retailising / granularizing the liability profile for banks. We note that that deposits as small as Rs 1mn can come from rate shoppers and can prove to be fickle, akin to a deposit that may be officially defined as a bulk deposit.”

·Digital Payments Intelligence Platform

“The RBI continues to take steps that promotes digital payments and it seems that it remains acutely focused on making digital payments a success in the long-run.”

·Auto-replenishment of Fastag, NCMC, etc

“This step serves to improve the usability of Fastag and NCMC further and is in line with the RBI’s overall intention of promoting digital payments.”

·Auto-replenishment of UPI Lite Wallet

“This step serves to improve the usability of UPI Lite Wallet further and is in line with the RBI’s overall intention of promoting digital payments.

It is interesting to note that, of late, One 97 Communications has been trying make a renewed effort to promote UPI Lite Wallet. The UPI Lite transaction limit is Rs 500 per transaction, the cumulative spend limit is Rs 4000 per day and the balance limit is Rs 2000. Hence, while the UPI Lite Wallet allows only smaller transactions compared with a traditional Wallet, the auto-replenishment facility is helpful at the margin in enhancing usability of this form factor.”

Policy interest rates

Key interest rate levels

With a 4 to 2 majority, the MPC decided to keep the policy repo rate unchanged at 6.5%.

The SDF rate also remained unchanged at 6.25% whereas the MSF rate and the bank rate remained unchanged at 6.75

Also, with a majority of 4 to 2, the MPC decided to remain focused on withdrawal of accommodation.

Rationale for policy rate action

While headline inflation has moderated along with core inflation, food inflation has remained elevated

The MPC remains vigilant to upside risks, particularly food inflation.

Comment on Fed action

 While the RBI watches rate actions of the advanced economics, its decisions are primarily dependent on domestic factors.

GDP growth aspects

The GDP growth for FY24 was 8.2% and FY25 so far has remained resilient.

·GDP forecast

The GDP growth for FY25 is projected to be 7.2%, which is higher than the 7% projected during the previous policy announcement.

The GDP growth projected for 1Q, 2Q, 3Q and 4Q in FY25 amounts to 7.3%, 7.2%, 7.3% and 7.2%, respectively, with risks evenly balanced.

More on Inflation

·Monsoon aspect

The southwest monsoon is expected to boost Kharif production and reservoir levels.

A forecast of above normal monsoon could bring respite from food inflation.

Crude oil prices

The outlook on crude oil prices remains uncertain due to geopolitical factors.

Inflation forecast

The inflation projection for FY25 has been retained at 4.5%.

The inflation projected for 1Q, 2Q, 3Q and 4Q in FY25 amounts to 4.9%, 3.8%, 4.6% and 4.5%, respectively, with risks evenly balanced.\

The correction in headline inflation in 2Q is mainly due to the one-off impact of base effect.

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