What are the changes we can see in the Banking sector due to Budget 24-25? Will the monetary policy and other policies of RBI see a change due to Budget 24-25?
1. Maintaining Adequate Reserves: Banks are supposed to maintain an absolute amount of cash reserves under the respective regulation-such as Cash Reserve Ratio or CRR. The reserves offer capacity for any cash claims that may occur in an unusual way from their depositors. Despite the fact that maintaRead more
1. Maintaining Adequate Reserves: Banks are supposed to maintain an absolute amount of cash reserves under the respective regulation-such as Cash Reserve Ratio or CRR. The reserves offer capacity for any cash claims that may occur in an unusual way from their depositors. Despite the fact that maintaining such reserves generates no interest, they provide liquidity for money at the bank’s end.
2. Asset/Liability Mismatch Management: They control their asset (loans and investments) and liability maturity profile to storage the inflow from the maturity of asset liability outflow thus minimizing the factor of liquidity risk.
3.Lending and Interbank Market: Also, banks can borrow from other banks in the interbank market or rely on short term funding instruments like repos if funds are immediately required. It would thus enable the servicing of their short term liabilities without compelling the sale of long term assets that would fetch high prices in the market.
4. Liquidity Pool: They possess a pool of HQLAs that can be sold easily at any time, amongst which are government bonds ,inter alia to allow the generation of cash in case of a thick of liquidity.
5. Diversification of funding source: The use of funding by banks reduces on distinct sources of funding for instance retail deposits, wholesale funding, bonds and yet reduces the risk of a short supply of liquidity.
6. Profitability through Lending and Investments: The liquidity that banks establish with regard to income earning activities for loans and securities would guarantee that liquid assets are properly utilized to generate profits without compromising on the capacity to meet its obligations.
This strategic management ensures availability of liquidity and profitability with reduction of the probability of high liquidity.
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The debate will surely center around the Budget 2024-25 bringing sweeping changes in banking sector. Therefore, measuring financial stability with growth key areas of impact include: Capital Infusion: The government is likely to inject fresh capital in the public sector banks making them healthier aRead more
The debate will surely center around the Budget 2024-25 bringing sweeping changes in banking sector. Therefore, measuring financial stability with growth key areas of impact include:
The Reserve Bank of India’s (RBI) monetary policy, too, might change in line with the budget. If the budget brings about a large uplift in spending, it could end up spooking India’s inflation-wary central bank into tightening monetary policy. On the other hand, measures that promote credit growth may be more accommodative. It may be complemented with regulatory changes to bolster digital banking and support the regulations for fintech and digital currencies. Over all, the budget is likely to chart a middle path between promoting growth and ensuring financial stability – which will consequently guide RBI on policy direction.
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