Credit Policy was on expected lines, say bankers

Banking sector honchos are unanimous in their view that status quo on the policy repo rate was on expected lines. The repo rate (the interest rate at which the RBI provides liquidity to banks to overcome short-term mismatches) is currently at 6.75 per cent. While the ‘no change in policy rate’ was widely anticipated by the market, some bankers feel that the central bank could have done more to address the liquidity deficit in the banking system.

Excerpts from the reactions of bankers:

Arundhati Bhattacharya, Chairman, State Bank of India : The RBI policy announcement of a status quo was on expected lines. With the RBI clearly mentioning that inflation trajectory is evolving as per expectations there are reasons to believe that RBI will continue in an accommodative mode.

However, on the liquidity front, there remains a concern with systemic liquidity deficit well in excess of the prescribed 1 per cent NDTL currently.

With revised liquidity coverage ratio kicking in and deposit growth lagging, RBI may have to be proactive in managing the liquidity deficit through tools available at its disposal.

Shanti Ekambaram, President – Consumer Banking, Kotak Mahindra Bank : The policy outlines global risks of slowing growth negating recovery in some markets, low commodity prices and the subdued global trade overall. In the Indian context, growth in Q3 was slower due to lower agriculture and industrial growth. The investment cycle remains weak with mixed growth in the services sector. Inflation trajectory was in line with expectations, and is estimated to be at 5 per cent by end of FY17. The key focus will now be on the Budget in terms of measures to enhance growth and outlining of fiscal consolidation.

The policy stance was accommodative and future action will be based on Budget outcomes.

Rana Kapoor, MD & CEO, YES Bank : Although the RBI maintained status quo on rates, the accommodative bias continues.

With CPI inflation poised to moderate to 5 per cent levels by end-FY17 and government committed towards spurring investment-led growth and fiscal consolidation, incremental room for monetary accommodation will open up post-announcement of the Union Budget.

I expect the RBI to play a complementary role and lower rates by 75 bps in 2016.

Ashwani Kumar, Chairman, Indian Banks’ Association : After front-loading a 50-basis-point cut in the repo rate in the fourth bi-monthly policy, another rate cut was not expected in the existing macroeconomic situation. Further, RBI had retained GDP growth numbers at 7.4 per cent for the current fiscal and 7.6 per cent for 2016-17 shows its confidence in the resilience of the economy despite several challenges.

The tone of the policy is more cautious and highlights various risk factors to economic growth. Concern was expressed on the muted growth in private investment and large numbers of stalled projects, which are affecting growth as well as sentiments of the market.

As for banks, the RBI has given explicit comfort on the liquidity front, which is quite tight at the moment.

HS Upendra Kamath, CEO, Tamilnad Mercantile Bank : The RBI has preferred to retain the rates at the current level keeping in mind the upward bias on food inflation.

Going forward, I am not expecting any rate cut this fiscal, but there is a likelihood of some announcement on the CRR/open market operations front.

K Venkataraman, MD, Karur Vysya Bank : The new lending rate norms, which will come into effect from April, will force banks to cut rates. But, for the present, rate cuts have happened as much as it can happen and banks by and large would find it difficult to cut the lending rate any further.

Credit pick-up has been low and the overall cost has gone up due to rising non-performing assets.

N Kamakodi, CEO, City Union Bank : With disturbing trends such as the highly uncertain global economic scenario with falling crude oil and commodity prices and slowdown in the Chinese economy, the RBI has accordingly decided to keep policy rates unchanged, indicating its preference to keep inflation below 6 per cent.

This is appropriate in the current context and can be regarded as a cautious approach.

P Jayarama Bhat, MD, Karnataka Bank : The policy is very much on expected lines. The markets are now looking forward to the fiscal stance to be taken by the government.

On a very inflation-targeted policy stance, the RBI has made its intent clear by not altering the rates to adjust the liquidity, but to depend on open market operations to mange the funds position.

George Alexander Muthoot, MD, Muthoot Finance : We agree that the RBI has done its bit.

But aggressive cuts are still warranted from the RBI with a similar quick response from banks which are seen averse to passing on the benefit to end-customers such as corporate India.

This is not about inflation anymore, but about economic growth, which seems stalled at the moment.

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