BANKERS’ REACTION. Bankers welcome withdrawal of incremental CRR

The RBI kept its policy repo rate unchanged at 6.25 per cent in the fifth bi-monthly monetary policy review in the backdrop of upturn in prices of several items, possibility of food inflation pressures re-emerging, likelihood of crude oil prices firming up and imminent rate tightening by the US Fed.

The six members of the monetary policy committee voted in favour of the monetary policy decision. While expressing surprise at the status quo on the repo rate, bankers welcomed the withdrawal of the incremental cash reserve ratio (CRR).

Arundhati Bhattacharya, Chairman, SBI: The decision of keeping the repo rate unchanged was a little surprising given that there has been sizeable demand destruction. Probably this may have happened due to possibilities of rise in energy prices as well as with an eye on Fed rate hike.

But the combination of removal of incremental CRR limit and MSS Scheme will help banks to manage their liquidity conditions better and bring financial stability to the system. .

Chanda Kochhar, MD and CEO, ICICI Bank: The RBI has maintained stability in monetary policy with a focus on the medium-term inflation targets being sustainably achieved, while continuing to be supportive of growth.

The policy has maintained an accommodative stance while taking into account global developments and domestic economic conditions.

With respect to demonetisation, the assessment that this will have only a transient impact on growth is welcome. With regard to liquidity and interest rates, the withdrawal of the incremental CRR requirement and the use of other instruments such as the Market Stabilisation Scheme to manage liquidity is welcome. Deposit and lending rates are expected to continue to show a downward trend going forward.

Rajeev Rishi, Chairman, Indian Banks’ Association : In this review, the RBI has given more focus on the trajectory of inflation, even though it is confident of meeting the inflation target of 5 per cent by March 2017.

Two positives for the banking sector from the policy are the assurance from the RBI on appropriate liquidity management and the possibility of a review of the repo rate after getting a precise picture on inflation.

Withdrawal of incremental CRR would also provide enough comfort to the banks as they will save on cost which could encourage them to take a call on lending rates.

Rakesh Sharma, MD & CEO, Canara Bank: A good policy by the RBI. Citing risks to inflation, the RBI has kept the key rates unchanged. This will ensure stability to currency and anchor inflation expectations.

However, they have rolled back the temporary measure which impounded 100 per cent of incremental NDTL by means of CRR. The revised MSS will ensure banks get a yield on their new deposits arising out of demonetisation. As we get clarity on inflation and what Federal Reserve does later this month, we can expect the RBI will be data dependent for the next cut.

Melwyn Rego, MD & CEO, Bank of India: Risk to inflation trajectory was the major reason for a pause, since base effect for CPI would be unfavourable from December onwards.

The tone of the policy is a bit hawkish. The RBI’s decision to withdraw CRR on incremental deposits is a welcome move. MSS bonds worth ₹6 lakh crore would ensure orderly liquidity management and is in line with liquidity neutral stance. Bond market, obviously, reacted negatively post policy with the benchmark 10-year paper rising 15-20 basis points. However, inadequate deployment avenues would lead to range bound movement in yields.

Rana Kapoor, MD & CEO, YES Bank: The RBI’s policy action of no rate reduction is a reflection of its confidence and conviction that the impact of demonetisation on the economy can only be expected to be transitory.

Further, the roll-back of incremental CRR hike is a positive move and augurs well for the banking sector, with the excess of liquidity to now be mopped up via upwardly revised limits under MSS and reverse repo.

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