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Book-keeping under lens

Arundhati Bhattacharya in Mumbai on Tuesday. (PTI)

Mumbai, April 1: The Reserve Bank of India today came down heavily on “window dressing’’ by banks to meet performance objectives.

RBI governor Raghuram Rajan today said the apex bank was planning to come out with measures to check such practices.

Rajan said the RBI would not bail out lenders for their policies. “I don’t think the RBI should be in the business of bailing out the banking system with the infusion of liquidity when the system is creating its own problems.”

On the practice of window dressing by lenders at the end of the year, the RBI governor said some of them reduced their risk-weighted assets to lower their capital requirements, while others increased their assets to meet performance targets set by the government. He added that such adjustments affected various market segments, necessitating the RBI’s intervention in terms of the provision of liquidity through the repo window.

Rajan said he would discuss the issue with the lenders with a focus on liquidity distortions towards the end of the year.

“(We should) not come to this pass where banks aren’t lending to each other to maintain the kind of balance sheets they want. The year-end should not be a time for anything special to happen, it should be smooth,” he said.

State Bank view

SBI chairperson Arundhati Bhattacharya today said there was no room for rate cuts now, adding that the RBI has hinted at stability in monetary policy.

However, the RBI today halved the overnight call money borrowing limit to 0.25 of net demand time liabilities and increased the term repo window cap to 0.75 per cent from 0.5 per cent, to contain volatility in the money market.

On the impact of these measures, bankers said there could be a marginal spike in cost of funds.

“We have to calculate the actual cost of funds with this action. Definitely there will be some impact on the cost. But it also depends on which side of the market you are on. However, there can be some cost pressure because of this,” Bhattacharya said.

 
 
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