Bankers welcome ‘balanced’ policy

Bankers were tight-lipped on the action that are likely to be taken on deposit and lending rates following the Reserve Bank of India upping the repo rate and paring the interest rate on the marginal standing facility.

Top bankers gave their views on the RBI’s second quarter review of its monetary policy.

K. R. Kamath, CMD, Punjab National Bank and Chairman, Indian Banks Association, said: I think the policy announcement has been on expected lines. It has quite met the expectations of the market. Availability of liquidity has increased further, with the increase in borrowing limits under the 7-day and 14-day repo window.

Each bank will have to see its liquidity position and decide on the rate of interest… So if you want liquidity in the system and fund the future growth, banks should get deposits into the system and give at least some returns to get them (depositors) back into the system. And in our anxiety to reduce rates, we end up reducing rates of deposits.

Arundhati Bhattacharya, Chairperson, State Bank of India: Yes, some rate changes could be expected, but I think we should wait for ALCO (Asset Liability Committee) meet. The policy has been balanced. We appreciate that the limit on repo has been increased.

Chanda Kochhar, MD and CEO, ICICI Bank: There are movements in both the directions (hike in repo rate and cut in MSF rate). Also, the third quarter is tight on liquidity generally. Therefore, we need to see the effect on cost of funds and take a view. In the current quarter, the bigger demand will be from festive season and advance tax. The demand from projects is still a little while away, so we won’t see that impact.

V. R. Iyer, CMD, Bank of India: This is the second repo hike since last month, clearly indicating RBI’s primary objective of tackling inflation first. However, the review tries to balance the liquidity concerns by doubling the limits of funds that can be raised under 7 and 14-days repos (along with relaxed MSF window).

Aditya Puri, MD and CEO, HDFC Bank: Cost of funds over the last three months have gone up. We are going back to a normalised monetary policy and over a period of time, it (interest rate) would come down.

Shailendra Bhandari, MD & CEO, ING Vysya Bank: The policy is fairly balanced, keeping in mind growth imperatives and inflation dynamics. What was reassuring was the neutral tone of the policy, and the clear message that while inflation is a concern, this will not be completely at the cost of growth.

Shyam Srinivasan, MD & CEO, Federal Bank: RBI has laid a clear roadmap of what to expect in future. All the moves should help bring in growth with price stability. Given the macro-economic challenges on both the domestic and global front, I believe the Reserve Bank has given a balanced response to the challenges on hand.

S.L. Bansal, CMD, Oriental Bank of Commerce, said the bank is not looking at any lending rate revision for now“Today’s policy will force banks to retain lending rates at their current levels. Most of the banks will go that way. We too are going to retain lending rates at the current level for now,”The fact that OBC will hold on to its lending rates when policy rates are going up should be good news for industry and other borrowers, he added.

M. Narendra, Chairman and Managing Director of Indian Overseas Bank, said: The cut in MSF rate and increase in the limit of term repo are expected to soften short-term interest rates by bringing down the cost of resources. As the operative rate still continues to be the MSF, the increase in repo rate may not have any impact on lending rates, says M. Narendra, Chairman and Managing Director of Indian Overseas Bank.

The RBI has taken into account the continued pressure on inflation expectations through most of the remaining part of the year as also weakening signs in industrial activity and in both consumption and investment demand. However, taking note of the improving exports growth and brightening prospects for agriculture, the banking regulator has raised its outlook for GDP growth in the second quarter.

The policy’s significance lies in the announcement of the five-point development plan that will inform future policies of the RBI covering critical areas of monetary policy framework, banking structure, financial markets, financial inclusion and financial distress.

All these indicate that future stance of the RBI will not only be supportive of growth but will actually take an active lead in the growth process, he said.

(With inputs from New Delhi and Chennai bureaus)

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