Sudden Move by RBI : Marginal rate & Bank Rate reduced to 9%

The RBI with immediate effect has reduced the marginal standing facility (MSF) rate, at which banks borrow from it, to 9 percent from 9.5 percent - It will improve liquidity in the system

This is the second reduction in the rate since the 20 September mid-quarter monetary policy review, when it was lowered to 9.5 percent from 10.25 percent. 

Interestingly the same rate was jacked up 2% in mid July to 10.25 per cent, to tighten liquidity in an attempt to curb volatility in the rupee-dollar exchange rate.

With this the RBI also announced that the bank rate will be adjusted to 9 percent with immediate effect

New 7 day & 14 Day tenor auctions i/o just overnight
 
 The central bank also said it will provide additional liquidity through term repos of 7-day and 14-day tenor for a notified amount equivalent to 0.25 percent of net demand and time liabilities (NDTL) of the banking system through variable rate auctions every Friday, starting 11 October. 

Earlier only overnight or 3 days (weekends) facility was available 

Implications 
1. Why sudden 

- Either RBI Guv has a mind of his own and its showing or 
- some other issues are there for which he is preparing for at double quick speed 
- why reduce rates when inflation was the target ?
- last move was followed by Rupee depreciation , this time ??

2. It will improve liquidity & reduce borrowing costs 

3. 7 day & 14 day repo will provide some certainty to the banks in the short run on their borrowing costs

4. Positive for the markets as of now 

Foot note

The RBI injects about Rs 1.5 lakh crore into the system daily through the liquidity adjustment facility, the export credit refinance facility and the marginal standing facility.

RBI Moves - Bans 0% loans & Additional Charges on Debit Cards

Today the RBI asked the banks to stop giving zero interest loans normally offered both on high value purchases & on credit card purchases.

They want full disclosure of costs to the customers – another cheating avenue gone 

So what are 0% loans really, nothing but a camouflaged marketing gimmick where the costs are routed via inflated processing fees and other charges which are not disclosed upfront while the gullible consumer is happy that he isn’t paying any interest. 

FMCG sales before festive seasons will sure be hit. 

No Additional charges to be levied on debit card purchases
 

In another move, the RBI said no additional charges can be levied by merchants on payments for goods by debit cards. 

Businesses levy fee as a %age of the transaction value as charges on customers who are making payments for purchase of goods and services through debit cards. 

These are unjustified & not permissible as per their agreements with banks.

A brief note of caution on 20% - 80% Housing Loan schemes

All the people investing in 20% / 80% schemes of builders should be aware that the builder has taken his full money from the bank and in event of default you are equally liable viz the bank can come after your assets. More so if the project is incomplete , there is no asset per se except land and a structure kind.

This is a serious issue and should be kept in mind.

Those who want to speculate via this route seem very vulnerable.

Your assets means all assets

If you have a family member jointly signing with you , even all their assets are covered in this ambit !

So If you have to enter into such an arrangement , do it only with the top firms in Reality sector but with knowledge that you are equally & fully involved !

btw - what is top firm these days  

ps - this will be more important for people around you with medium income levels trying to get rich quick or board the property train in a big way...in such difficult recessionary times , jobs aren't so certain & secure , vulnerability is much higher..please guide them well & earn some Karma points !!