INDIAN BANKING INDUSTRY INTEREST RATE CUT Further to the instructions from the Finance minister P.

Chidambaram, state-run banks have reduced their bank rates by 25 basis points. The banks which have reduced their rates include the Union Bank, Oriental Bank of Commerce, Canara bank. The rational for the reduction in the rate cuts is to boost the growth in the country. Advantages of rate cuts: Reduction in interest rate will help in credit picking up in the retail and small businesses segment. Reduction in the rate cuts will help the students who wish to study abroad. The interest burden on students taking loan will reduce as the interest rate on loans is dependable on the bank rates. The rate reduction is applicable to both new applicants and existing borrowers of education loans.

The fear of reduction in the net interest margins of banks are allayed by the expectations of reduction in the costs of funds and increase in the credits as the economy improves. BANKING REGULATIONS Violation of anti-money laundering norms by banks has invited the wrath of the RBI. RBI on 12th of June has warned banks to meticulously follow its instructions with regard to walk-in customers while selling insurance, mutual fund, gold and other products above Rs 50,000 or face action. The Cobra-post operation exposing the violation of norms by banks has made a serious impact and thereby RBI has instructed the banks to follow the instructions in letter and spirit and ensure that violations of (KYC and anti-money laundering norms) do not recur. The existing guidelines include:
Banks should verify the identity and address of walk-in-customers while selling third

party products, like insurance, mutual funds, gold coins. PAN is mandatory for transactions exceeding Rs 50,000 The instructions in respect of third party products would also apply to sale of banks' own products, payment of dues of credit cards/sale and reloading of prepaid/travel cards and any other product above the threshold of Rs 50,000.

CLASSIFICATION OF FLOATING PROVISIONS RBI is expected to issue an order asking banks to classify floating provisions as net demand and time liability. Floating provisions are provisions made in excess of what banks are required to make. However, banks can dip into floating provision only after taking approval from RBI. RBI is likely to ask banks to treat floating provisions as a part of net demand and time liability on which banks are mandated to maintain cash reserve ratio and statutory liquidity ratio. This move will hurt HDFC Bank and IndusInd banks more. HDFC Bank has floating provisions of Rs 1800 crore while IndusInd bank has floating provisions of Rs 50 crore. Currently banks have to park 4% of the NDTL with RBI as CRR and invest 23% of their deposits in government securities known as SLR. If floating provisions are added to banks deposits, they will have to park more money with RBI in form of CRR where they do not earn any interest.