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Old 31st January 2013, 09:46   #1
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Default Impact of RBI policy decision on the Auto sector

Hi folks
Sharing the news with the wider forum and putting together my thoughts on the same.
The RBI on Tue Jan29th cut its key policy rates - Repo rate and Cash Reserve Ratio (CRR) - by 25 basis points each. In simple terms, Repo rate is the interest rate at which RBI lends ovenight funds to banks to help them tide over temporary liquidity deficit and CRR is the quantum of deposits that banks have to park with RBI.

What this means is banks are having now slightly excess funds (approx Rs. 20,000 crore) with them and they can afford to offload or cut the min lending rate for retail, micro, SME and large enterprises, albeit by not much margin.

For us mortals, these cuts are a step in the right direction as far as retail loans are concerned.

In today's scenario, banks offer anything from 10% to 14% for a new car purchase with PSU banks leading the charge and private banks following them.

On the issue of rate cuts, the doyens of auto industry seem to have divided opinion. Quoting a few leaders below:-
SIAM - This is definitely a positive development and it is likely to send a positive signal in the market although the cut is very less.
Maruti Suzuki - The cut is too less for now and may not bring in any big impact.
M&M - This announcement is welcome and will help revive investments in the core sectors.
GM - Don't think a reduction of 25 basis points will immediately support revival of demand.

So in summary, we now have to see how does the sector (Manufacturers + Banks) play out to help trigger the auto sector and in turn effectively bring down the total cost of ownership of a car for the retail consumer.

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Old 5th April 2016, 14:06   #2
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Default Auto Loans to get cheaper !

Auto Loans to get cheaper !

Borrowing cost is likely to come down with Reserve Bank of India resuming the process of monetary easing by lowering repo rate by 25 basis point in line with market expectation and ensuring easy liquidity for banks.

The new repo rate is now 6.50% as the central bank reduced it after a gap of six months. Repo rate was lowered by 150 bps since January last year, when RBI begun its accommodative cycle.

Governor Raghuram Rajan said the latest policy action would be far more effective now as banks moved to marginal cost-based lending from April 1.

According to RBI estimates, borrowing cost has already become cheaper by 25-50 bps even before the policy announcement with the new system being in place.

"Marginal cost-based lending will help rate cut transmission," Rajan said in his post-policy media interaction.

The central bank has eased liquidity management for banks by cutting the minimum daily maintenance of banks' cash reserve with it to 90% from 95% of the requirement. This will be effective from the fortnight beginning April 16.

"Major focus of the policy is to address liquidity issues," Rajan said.

The governor has assured smooth supply of durable liquidity over the year using asset purchases and sales as needed and narrowed the policy rate corridor by raising reverse repo rate by 25BPS
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Old 5th April 2016, 21:10   #3
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Default Re: Impact of RBI policy decision on the Auto sector

Very informative read, as received in one of my social networking app groups-

What does todays RBI monetary policy review mean for you?

The much awaited RBI policy came in earlier today. RBI cut the repo rates by 0.25% and improved liquidity measures. Letís understand what it means for you?

Your investments:
The rates on Bank and corporate FDs along with other fixed income instruments, will go down which means if your FDs are maturing now, you may have to renew them at lower rates. If you have deposits close to maturity or recently matured, go ahead and lock in right away if you are in a lower tax bracket.
The monetary policy was accommodative which means there could be a further chance of rate cuts and/or transmission. This could mean that short term bond funds and accrual funds could become more attractive. Further rate cuts would be subject to levels of rate transmission, Inflation and the monsoon. Thus, use a combination of tax free bonds, accrual and dynamic bond funds in your portfolio if you are in a higher tax bracket
For corporates, it could mean lower cost of borrowing, which could help improve earnings for companies, and thus a booster for the equity markets over the medium term.

Your loans:
A combination of lowering of interest rates and the introduction of the Marginal cost based lending rate (MCLR) will mean lower loan rates. You can look to refinance your home loan at a lower rate. Car loans and other loans could also become cheaper.

What did RBI do?
The RBI has cut repo rates, the rate at which banks borrow from RBI, by 0.25%, to 6.5% from 6.75% earlier.

They have increased Reverse Repo, rates at which banks lend to RBI, by 0.25% to 6% from 5.75%. They have also cut the MSF (Marginal Standing Facility Rates), the rate at which banks borrow from RBI above the repo rate, by 0.75%, reducing the corridor between MSF and reverse repo from 1% earlier to 0.5% now. This reduced corridor means the over night lending rate at which banks lend and borrow from each other will reduce. This will also mean increased liquidity in the system, making bonds attractive.
The Cash Reserve Ratio (CRR) which Banks have to deposit with RBI, remain unchanged at 4% but the minimum daily maintenance of reserves was reduced from 95% earlier to 90% now, which could be marginally positive for liquidity.
Going forward, interest rate changes will depend on the monsoon and inflation. There is a liquidity deficit due to slow deposit growth. RBI will continue to provide liquidity when required and will aim to move from liquidity deficit position to liquidity neutral position.

What else has been happening?
Since Jan 2015 RBI had cut interest rates by 1.25% (Now 1.50%), but the transmission to depositors/borrowers had taken place only partially for multiple reasons. Due to the high rates offered on small savings schemes and post offices, banks were not comfortable cutting deposit rates. Recent rate cut in small savings schemes is aiding transmission of rate cuts. The banks can now go ahead and cut deposit rates. Also RBI has introduction Marginal Cost based Lending Rate, a new method of calculation of loan rates which has come into effect from 1 April 2016. This rate will be applicable for new loans. This rate will replace the base rate which is currently used by banks. The Marginal cost based lending rate (MCLR) will be calculated based on the deposit rates that the bank is offering to its depositors. In the shorter term the loan rates will be lower when calculated based on MCLR.

Watch out for the next RBI policy on June 7, 2016
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