The “Rajan effect” on banks
By Joseph Samson
Sep 11, 2013
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RBI has announced the short term steps for foreign currency borrowings and lower swap coasts and they aim at addressing current currency issues and have negligible benefits for the banks. The secondary effect of the move falls on the bond market and would be an interesting facet to look out for. However, it seems that the medium and long term loans will have a positive impact in whatever way they are implemented.

The FCNR deposits for the country have languished at $15 recently and the CDS have increased by 200 bps, thus making it more difficult to raise the funds. Since PSU banks like SBI, Bank of India, ICICI Bank and Bank of Baroda have large international presence; they will be the direct beneficiaries. While the announcement addresses the time bound implementations and delays in process, banks would still need to serve various inclusion criteria for urban expansion.

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