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India's GDP growth is projected at 7.2 per cent in 2024-25, around 7 per cent in the next fiscal, and after that, there is a strong likelihood that the growth will revert to the 8 per cent trend, said <keyword id="19899810" type="General" weightage="20" keywordseo="Reserve-Bank-of-India" source="keywords" meta.keywordsubtype="org" meta.entityname="Reserve Bank of India" meta.hostid="261" meta.entityid="Reserve Bank of India">Reserve Bank of India</keyword> deputy governor <keyword id="20244361" type="General" weightage="20" keywordseo="Michael-Debabrata-Patra" source="keywords">Michael Debabrata Patra</keyword>. He was speaking at the New York Fed Central Banking Seminar organised by the <keyword id="20238413" type="General" weightage="20" keywordseo="Federal-Reserve-Bank" source="keywords" meta.keywordsubtype="org" meta.entityname="Federal Reserve Bank" meta.hostid="261" meta.entityid="Federal Reserve Bank">Federal Reserve Bank</keyword> here on Monday. "...I do believe with all the strength of my conviction that India's time has come," he said, and highlighted the country heads into its future with the youngest population in the world with a median age of 28 years. Unlike in many parts of the world, the working age population is growing -- every sixth working age person is an Indian. Patra said that since independence in 1947, India's growth path has undergone three structural shifts with trend growth, having risen to 7 per cent during 2002-2019. After the severe contraction during the pandemic, a new growth trajectory averaging 8 per cent seems to be forming during 2021-24, he said. India is now regarded as the fastest growing major economy in the world. Already the fifth largest economy in terms of market exchange rates, it is poised to become the third largest economy by 2030, the senior RBI official said and added the country is already the third largest economy in terms of <keyword id="20776921" type="General" weightage="20" keywordseo="purchasing-power-parity" source="keywords">purchasing power parity</keyword>. "Our projections show that India's <keyword id="21013593" type="General" weightage="20" keywordseo="real-GDP-growth" source="keywords">real GDP growth</keyword> will be 7.2 per cent in 2024-25 and around 7.0 per cent in 2025-26 in a cyclical correction to the rebound from the pandemic. Thereafter, there is a strong likelihood that India's growth will revert to the 8 per cent trend," Patra said. On inflation, he said it is projected to average 4.5 per cent in 2024-25 and 4.1 per cent in 2025-26. Consumer Price Index (CPI) based inflation fell below target during July-August but rose to 5.5 per cent in September on the back of a pickup in price momentum in some food items and adverse base effects inherent in year-on-year measurement. "Our projection indicates that these price pressures will persist in October and November before headline inflation realigns with the target from December 2024 and remains aligned in 2025-26," the deputy governor said. He also emphasised that India is emerging as a world leader in leveraging <keyword id="20181895" type="General" weightage="20" keywordseo="digital-technologies" source="keywords">digital technologies</keyword> for transformative change.

India likely to grow at 7.2% in FY25, says RBI deputy governor

New Delhi: <keyword id="19895063" type="General" weightage="20" keywordseo="india" source="keywords">India</keyword> has demonstrated a largely successful inflation targeting regime compared to advanced economies such as the USA, Germany, and France, according to a research report by the <keyword id="19934368" type="General" weightage="100" keywordseo="state-bank-of-india" source="keywords">State Bank of India</keyword> (SBI). The report credits government initiatives, the <keyword id="19899808" type="General" weightage="20" keywordseo="rbi" source="keywords">RBI</keyword>, and banks for addressing these issues over the past decade, allowing for better policy transmission and improved inflation management. "The success of Inflation Targeting in India is largely a byproduct of a vibrant financial ecosystem where <keyword id="23140158" type="General" weightage="20" keywordseo="rbi-government" source="keywords">RBI, Government</keyword> and the Banks are working closely in unison in ushering in market reforms" said the report The report highlighted that India experienced minimal deviations from its inflation targets between 2021 and 2024, setting it apart from other global economies facing greater inflationary challenges. It added that during 2021-2024, India recorded one of the lowest deviations from its inflation targets, highlighting the effectiveness of its inflation control measures. This success, the report points out, is largely a result of coordinated efforts between the <keyword id="19899810" type="General" weightage="20" keywordseo="reserve-bank-of-india" source="keywords">Reserve Bank of India</keyword> (RBI) and the central government. "India had a largely successful inflation targeting regime. Compared to advanced economies like the USA, Germany" said the report. As per the report the synchronization of monetary and fiscal policies, particularly during the pandemic, played a key role in maintaining price stability. It also emphasized that India's pre-inflation targeting regime faced several challenges that hindered the effective transmission of monetary policy. These challenges included sustained fiscal dominance, the presence of a large informal sector, significant informal financing, and inefficiencies in how banks priced their loan products. "Effectiveness of monetary policy in India's pre-Inflation Targeting regime was constrained by several India specific factors that affected transmission of the policy impulses through the interest rate channel" the report added. However, one of the key arguments in the report is that the RBI's inflation targeting has anchored inflationary expectations, even as food inflation remains high. The notion that headline inflation should exclude food prices was dismissed as counterfactual by the report. According to the study, the RBI's success in targeting inflation, despite food price volatility, has prevented a spill-over from food inflation to core inflation. The report stressed that the RBI's consistent communication of its inflation target--set at 4 per cent--has been crucial in successfully anchoring inflation expectations. By reinforcing its commitment to this target, the RBI has helped stabilize inflationary trends across the broader economy. The SBI report reinforces India's effective monetary policy framework, particularly in light of the global inflationary pressures seen in advanced economies like the US and Germany.

India handled inflation much better than US, Germany and France: SBI Report

Mumbai: The Reserve Bank is unlikely to cut the benchmark <keyword id="20071327" type="General" weightage="20" keywordseo="interest-rate" source="keywords">interest rate</keyword> in its forthcoming bi-monthly monetary policy review later in the week as <keyword id="19999652" type="General" weightage="20" keywordseo="retail-inflation" source="keywords">retail inflation</keyword> is still a cause of concern, and there is a possibility of the Middle East crisis deteriorating further, impacting crude oil and commodity prices, say experts. Earlier this month, the government reconstituted the Reserve Bank's rate-setting panel -- <keyword id="19913109" type="General" weightage="20" keywordseo="Monetary-Policy-Committee" source="keywords">Monetary Policy Committee</keyword> (MPC). The reconstituted panel, with three newly appointed external members, will commence its maiden meeting on Monday. MPC Chairman RBI Governor Shaktikanta Das will reveal the outcome of the three-day discussion on Wednesday (October 9). The <keyword id="19899810" type="General" weightage="100" keywordseo="Reserve-Bank-of-India" source="keywords" meta.keywordsubtype="org" meta.entityname="Reserve Bank of India" meta.hostid="261" meta.entityid="Reserve Bank of India">Reserve Bank of India</keyword> (RBI) has kept the repo or short-term lending rate unchanged at 6.5 per cent since February 2023, and experts think some easing could only be possible in December. The government has tasked the central bank to ensure that Consumer Price Index (CPI) based retail inflation remains at 4 per cent with a margin of 2 per cent on either side. In the current context, experts feel that the RBI may not follow the US Federal Reserve, which lowered the benchmark rates by 50 basis points, and the central banks of some developed nations, which have reduced the interest rates. "We do not expect any change in the <keyword id="20094323" type="General" weightage="20" keywordseo="repo-rate" source="keywords">repo rate</keyword> or stance by MPC. The reason is that inflation for September and October will be above 5 per cent, and the present low inflation is due to the base effect. Besides, core inflation is inching upwards," said Madan Sabnavis, Chief Economist, Bank of Baroda. Further, the recent Iran-Israel imbroglio can intensify, and there is uncertainty here, he said. "Hence, the status quo is the most likely option even for new members. Inflation forecast may be lowered by 10-20 bps and no change in GDP forecast likely," said Sabnavis. The central bank last hiked the repo rate to 6.5 per cent in February 2023 and since then, it has held the rate at the same level. Icra Chief Economist Aditi Nayar said that given the undershooting in the initial first quarter GDP growth relative to the MPC's forecast and the likely sizeable undershooting in the second quarter CPI inflation print as well, "we believe a stance change to neutral may be appropriate in the October 2024 policy review". This could be followed by a shallow rate-cutting cycle of 25 bps each in December 2024 and February 2025, she added. "The abundant monsoon offers some insurance for crop inflation. The impact of global political developments and geopolitical uncertainty on the growth inflation dynamics remains a risk," Nayar added. An HSBC report said three developments stand out -- softer growth numbers have trickled in recently, inflation has been falling, and the external environment has moved from rate hikes to cuts. "We believe the RBI doesn't gain from waiting any longer. We think it will change its stance from a hawkish 'withdrawal of accommodation' to 'neutral' in the upcoming 9 October policy meeting, followed by repo rate cuts of 25 bps each in the December and February meetings, taking the repo rate to 6 per cent," the report said. The RBI kept the repo rate unchanged at 6.5 per cent in its August bi-monthly review amid risks from higher food inflation. This was the ninth consecutive MPC meeting, which decided to maintain the status quo on the rate front. Pradeep Aggarwal, founder and chairman, Signature Global (India) Limited, said while the real estate industry, developer community, and homebuyers are hoping for an interest rate cut in the upcoming monetary policy review, the RBI is likely to hold on to the interest rate cuts for the tenth consecutive time. "The apex bank still seems uncomfortable with the overall retail inflation scenario, particularly food inflation. As such, it is expected to maintain the status quo. The recent interest rate cut by the US Federal Reserve has ignited similar hopes even in India, but the domestic scenario is very different," he added. SBM Bank India Head Treasury Mandar Pitale believed that the MPC has persistently advocated a restrictive policy until inflation aligns durably towards the 4 per cent target. "With the unfavourable base effect taking the next couple of CPI prints near 5 per cent plus or minus, it will pose a major challenge for MPC to start easing from the October meeting," Pitale said, adding that the MPC is also expected to deliberate upon the global factors like growth-inflation behaviour in developed economies. The government has appointed Ram Singh, Saugata Bhattacharya, and Nagesh Kumar as external members of the MPC. They have replaced Ashima Goyal, Shashanka Bhide, and Jayanth R Varma. Apart from the Governor, the other internal members are the RBI Deputy Governor in charge of monetary policy Michael Debabrata Patra and the Executive Director monetary policy department of RBI Rajiv Ranjan. In an off-cycle meeting in May 2022, the MPC raised the policy rate by 40 basis points and it was followed by rate hikes of varying sizes, in the subsequent meetings till February 2023. The repo rate was raised by 250 basis points cumulatively between May 2022 and February 2023.

Status-quo on interest rate likely, say experts ahead of RBI's policy review

Amid questions on the depleting <keyword id="20776807" type="General" weightage="100" keywordseo="loan-to-deposit-ratio" source="keywords">loan-to-deposit ratio</keyword> in <keyword id="19895091" type="General" weightage="20" keywordseo="Indian-banks" source="keywords">Indian banks</keyword>, a recent report by <keyword id="19896146" type="General" weightage="20" keywordseo="Motilal-Oswal" source="keywords" meta.keywordsubtype="org" meta.entityname="Motilal Oswal" meta.hostid="269" meta.entityid="Motilal Oswal">Motilal Oswal</keyword> suggests that the loan-to-deposit (LD) ratio is likely to subside on its own in the coming months. The debate on loan-to-deposit ratio (LD), particularly concerning sluggish <keyword id="19998084" type="General" weightage="20" keywordseo="deposit-growth" source="keywords">deposit growth</keyword> and potential risks to <keyword id="20089808" type="General" weightage="20" keywordseo="financial-stability" source="keywords">financial stability</keyword> is raised by even the finance minister and the <keyword id="20151998" type="General" weightage="20" keywordseo="RBI-governor" source="keywords">RBI governor</keyword>. However, the report notes that on closer examination, the situation may not be as alarming as it seems. As of 9th August, 2024 the Indian <keyword id="19964544" type="General" weightage="20" keywordseo="banking-sector" source="keywords">banking sector</keyword>'s loan-to-deposit (LD) ratio stood at 77.2 %, which is slightly below its recent peak of 78.2 % on 22nd March 2024, and its all-time high of 78.8 % in September 2013. The report stated that typically a rising LD ratio is indicative of a tightness in the banking sector, potentially indicating overheating. A lower LD indicates that the bank is aggressive in its credit disbursement practises, which could be risky. It highlighted that an analysis of the sector's transactions with the Reserve Bank of India (RBI) through the liquidity adjustment facility (LAF), along with recent trends in the weighted average call rate (WACR), suggests that the current rise in the LD ratio does not indicate tightness, which is why there is no immediate cause of concern. In fact, the report added that the concern over weak deposit growth may be overstated. Historical data show that bank deposits grew at an average rate of 9.5 % during the pre-COVID period (January 2015 to February 2020) and 10.4 % in the post-COVID period (March 2020 to August 2024). Earlier, Finance Minister Nirmala Sitharaman also urged state-run banks to enhance deposit mobilization through attractive offers and focusing on Tier-2 and Tier-3 cities. Loan-to-deposit ratio pegs the total deposits received by the bank against the loans it has offered. It helps in understanding how liquid the bank is. The loan-to-deposit ratio (LDR) is a financial metric that compares a bank's total loans to its total deposits. It's used to assess a bank's liquidity and credit risk, and to inform lending and deposit-taking decisions The report said while the exact measures are unclear, the deposit growth could potentially be increased by making other asset classes less attractive through taxation or interest rates, or by boosting fiscal spending to increase net credit to the government. In its forecast, the report noted that private banks will witness a moderation in their <keyword id="19998083" type="General" weightage="20" keywordseo="credit-growth" source="keywords">credit growth</keyword>, while public sector banks will maintain a healthy credit growth rate. "Our analysis suggests that deposit growth could be raised by either making other asset classes unattractive (through taxation and/or interest rate) or increasing the growth in net credit to the government by pushing fiscal spending higher" the report added. Alternatively, policymakers might consider curtailing loan growth to lower the LD ratio. However, this could slow deposit growth, particularly if corporate credit growth remains weak. Encouraging savers to shift investments from other assets to bank deposits could also be an option, but this carries risks of overreach and potential damage to economic confidence. Das had also flagged the excessive growth, or froth developing in the personal loan space. Notably, while credit growth in unsecured personal loans like credit cards continues to decline, it remains elevated at 23.3% as of June 2024. However, this is a significant reduction from 34.2% witnessed in November 2023. As fiscal spending increases, bank credit to the government is likely to grow, which should elevate deposits and broad money supply. The report said "However, the extent of foreign capital inflows and the RBI's policy for managing these inflows remain uncertain". Last month, RBI governor Shaktikanta Das had also addressed this issue in the 50th meeting of MPC (Monetary Policy Committee). Per him, deposit mobilisation has been lagging credit growth for some time now. This may potentially expose the system to structural liquidity issues. "While there could be a debate regarding ‘deposits funding loans’ vis-à-vis ‘loans funding deposits’, the current regulatory concern stems from the fact that there could be structural changes happening which banks need to recognise and, accordingly, devise their strategies. Households and consumers who traditionally leaned on banks for parking or investing their savings are increasingly turning to capital markets and other financial intermediaries", Das said. Per him, while bank deposits continue to remain dominant as a percentage of financial assets owned by households, their share has been declining consistently, since households are now increasingly allocating their savings to mutual funds, insurance funds, pension funds and other avenues.

Loan-to-deposit ratio will subside on its own in coming months, notes Motilal Oswal report

The <keyword id="19899810" type="General" weightage="20" keywordseo="Reserve-Bank-of-India" source="keywords" meta.keywordsubtype="org" meta.entityname="Reserve Bank of India" meta.hostid="261" meta.entityid="Reserve Bank of India">Reserve Bank of India</keyword> (<keyword id="19899808" type="General" weightage="20" keywordseo="RBI" source="keywords">RBI</keyword>) on Monday said 97.96 % of the <keyword id="6429211" type="General" weightage="20" keywordseo="rs-2" source="Orion">Rs 2</keyword>,000 denomination <keyword id="20481528" type="General" weightage="20" keywordseo="banknotes" source="keywords">banknotes</keyword> have returned to the banking system, and only Rs 7,261 crore worth of the withdrawn notes are still with the public. On May 19, 2023, the RBI announced the withdrawal of Rs 2,000 denomination banknotes from circulation. The total value of Rs 2,000 banknotes in circulation, which was Rs 3.56 lakh crore at the close of business on May 19, 2023, when the withdrawal of Rs 2,000 banknotes was announced, has declined to Rs 7,261 crore at the close of business on August 30, 2024, the RBI said. "Thus, 97.96 % of the Rs 2,000 banknotes in circulation as on May 19, 2023, has since been returned," it said in a statement. The facility for deposit and/or exchange of the Rs 2,000 banknotes was available at all bank branches in the country till October 7, 2023. The facility for the exchange of the Rs 2,000 banknotes has been available at the 19 issue offices of the <keyword id="19922074" type="General" weightage="20" keywordseo="reserve-bank" source="keywords">Reserve Bank</keyword> since May 19, 2023. From October 9, 2023, RBI issue offices are also accepting Rs 2000 banknotes from individuals and entities for deposit into their bank accounts. Further, members of the public are sending Rs 2,000 banknotes through India Post from any post office within the country to any of the RBI issue offices for credit to their bank accounts. The 19 RBI offices depositing/exchanging the banknotes are in Ahmedabad, Bengaluru, Belapur, Bhopal, Bhubaneswar, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Jammu, Kanpur, Kolkata, Lucknow, Mumbai, Nagpur, New Delhi, Patna and Thiruvananthapuram. Rs 2000 banknotes were introduced in November 2016, following the demonetisation of the then-prevailing Rs 1,000 and Rs 500 banknotes. However, even after their discontinuation, Rs 2,000 notes continue to remain legal tender. Per the apex bank's last update, which came out on August 1st, 2024, Rs 2,000 banknotes had declined to Rs 7409 crore at the close of business on July 31, 2024. Thus, by last month, 97.92% of the Rs 2,000 banknotes which were in circulation as on May 19, 2023, had been returned.

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India likely to grow at 7.2% in FY25, says RBI deputy governor

PTI

India handled inflation much better than US, Germany and France: SBI Report

ANI

Status-quo on interest rate likely, say experts ahead of RBI's policy review

PTI

Loan-to-deposit ratio will subside on its own in coming months, notes Motilal Oswal report

Ira Alok Puranik

Rs 2,000 notes: 97.96% returned; Rs 7,261 crore worth notes still with public

PTI

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