Bankers see consistency in Rajan’s rate moves

While the status quo on interest rates was on expected lines, RBI Governor Raghuram Rajan’s surprise cut in Statutory Liquidity Ratio has been welcomed by bankers, who see consistency in policy rates in the medium and long terms.

In its bi-monthly policy review on Tuesday, the RBI left the repo rate unchanged at 8 per cent with a view to balance the rising inflation and expected recovery in economic growth. Following are the reactions of some of the bankers:

Arundhati Bhattacharya, Chairperson, State Bank of India: The status quo on policy rates was expected but the SLR cut was a surprise and it will have very little impact on us as we are already sitting on excess SLR.

Going forward, if growth picks up, it (SLR cut) will help us to meet credit demand. A rate cut cannot be expected immediately, but the RBI is signalling credit growth going forward and the policy is making more resources available.

SS Mundra, CMD, Bank of Baroda: The policy action is consistent with the RBI’s medium- and long-term direction on interest rates. Now, everything will revolve around a single policy rate.

Though the 50 basis point cut will help release more liquidity for productive purposes, the system is already sitting on excess SLR. It will help in developing a better yield curve. No rate action can be anticipated immediately as there are two-three other events such as Budget and monsoon before the next policy.

Chanda Kochhar, MD & CEO, ICICI Bank: The decision to hold rates reflects the current level of inflation as well as the expectation of policy and administrative actions from the Government in the coming months to address inflation as well as boost growth. The reduction in the SLR is a welcome signal of the commitment to reduce pre-emption of resources over time and create more room for banks to finance growth. The measures with respect to outward remittances and currency markets reflect the significantly improved confidence in the country’s external position and the focus on developing deeper onshore markets.

Shyam Srinivasan, MD and CEO, Federal Bank: The policy is consistent with the RBI’s stance on linking interest rates to inflation and keeping CPI as the key benchmark for policy rates.

The unexpected cut in SLR by 50 bps signals the regulator’s proactive stand on growth and is viewed as a confidence-building measure, providing banks with more lendable funds leading to good credit offtake.

Shailendra Bhandari, MD and CEO, ING Vysya Bank: We see stability and a steady policy stance even as the overall approach of the policy is neutral to dovish.

Both SLR and export credit refinance reduction are two significant measures that help ease liquidity in the near term. Also, raising the ceiling for foreign currency remittances implies better macroeconomic indicators.

M Narendra, CMD, Indian Overseas Bank: Continuing to hold the economy on a dis-inflationary course, the RBI has left the key rates unchanged for the present.

If the rate of inflation continues to decrease further policy tightening will not be warranted and there will be headroom for an easing of the policy stance.

CVR Rajendran, CMD, Andhra Bank: The cut in SLR will infuse ₹35,000 crore liquidity into the market. What is important is that there seems to be an assurance that rates are not going to increase in the days to come.

The policy also gives the impression that the RBI would not lead the market and but would follow it.