Money Morning…


Rates unchanged but shift in RBI policy stance clearly visible in near future- Neutral from short term perspective

The RBI’s decision to keep the key policy rates unchanged is in line with our and market expectations. However, the policy stated that if the current inflation momentum and changes in inflationary expectations continue and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle. In his media briefing, Rajan suggested that once there is a change in policy stance then it does not want to flip flop the interest rate direction. We believe the inflation is likely to remain at lower levels going ahead as crude and other commodity prices have fallen sharply. This shall negate the risk that the low base effect may again creep inflation upwards from next inflation reading. We believe that the rate cuts by RBI shall begin from the last quarter of the current financial year. Though the quantum of rate cuts shall be determined by the inflation data, fiscal deficit, current account deficit and rupee movement going ahead. G-sec bond rates have fallen by 50 bps+ post Q2FY15. Similarly the short term rates including CD/CP rates have fallen by ~50 bps. Thus, the borrowing cost for bank and the system interest rates is already trending south. Besides, RBI has announced that it may soon release the guideline for 5/25 structure for infrastructure projects and also increase the equity stake of banks in the restructured project for which pricing is being formulated. These guidelines may turn out to be positive for PSU banks as they have higher share of stressed projects. Overall the policy is neutral for banking sector in short term but marginally positive for PSU banks- BOI, PNB, Canara Bank, BOB, SBI, etc.

Cabinet clears 14 changes to Companies Act

The Cabinet on Tuesday cleared 14 changes in the Companies Act, 2013, paving the way for tabling the amendments in the ongoing session of Parliament. The move is aimed at making it easier to do business in India, which is placed at 142 among 189 countries in the recent World Bank report, and addressing concerns raised by India Inc regarding the Act, which was enforced just this financial year. The amendments include replacing ‘special resolution’ with ‘ordinary resolution’ for approval of related-party transactions by minority shareholders. This means that the companies only need to have the consent of 50% of the minority shareholders present instead of the 75%, which is prescribed in the current law.

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