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Though the Reserve Bank of India did not match the Government’s big-ticket reform efforts, bankers have appreciated its move to cut the cash reserve ratio by 25 basis points.
This cut comes even as the economy is facing the challenge of persistent inflation and flagging growth. Bankers have dropped hints that lending rates could soften due to liquidity injection on account of the CRR cut.
Chanda Kochhar, Managing Director and CEO, ICICI Bank : CRR cut will ensure that systemic liquidity remains in the comfort zone. The RBI has been forward-looking to factor in the impact of tax outflows as also a pick up in liquidity requirements in the “busy season”. It continues to focus on containing inflation at this juncture.
We must remember that the year started with a 50 basis points (bps) cut in interest rates by the RBI, thereby front-loading a large part of the anticipated loosening of monetary policy in the current year.
Given the comfortable liquidity and the recent reduction in deposit rates by banks, interest rates in general could be expected to trend downwards gradually.
Ajai Kumar, CMD, Corporation Bank : The RBI has responded well to the industry’s concerns and has reinforced the Government’s supportive measures.
Banks have a window open to reduce their rates, but that would depend on their asset-liability profile. The rate cut, if any, will be driven by excess liquidity and other competing factors and not solely by the CRR cut.
H. S. Upendra Kamath, CMD Vijaya Bank : The move will help bring down dependence of banks on high-cost deposits.
Those banks which are not dependent on such deposits can use this amount for on-lending. This will also help the banking system.
S. L. Bansal, CMD, Oriental Bank of Commerce : The bank will soon consider a further base rate cut. The bank’s asset-liability committee will meet shortly to take a call.
Borrowers could see better days ahead as banks are expected to cut lending rates following the RBI’s decision to unlock Rs 17,000 crore by slashing cash reserve ratio by 0.25 per cent. OBC had last cut its base rate on August 16 when it brought it down by 10 basis points to 10.40 per cent.
M. Narendra, CMD, Indian Overseas Bank : Contrary to popular expectations, the RBI chose to wait till the pass-through effect of the current fiscal consolidation is complete before tweaking the policy rates. The objective behind the current decision may be two-fold.
First, to enable banks to meet the expected surge in credit demand. And, second, the release of additional funds, when the liquidity is already comfortable, may enable banks to effect selective cuts in rates, particularly for interest-sensitive sectors.
Shyam Srinivasan, MD and CEO, Federal Bank : The reduction in CRR goes well with the recent policy announcements by the Centre. Holding repo rates constant suggests that the RBI is still wary of high inflation, which may peak before it starts trending down. The easing of liquidity, combined with the recent enabling policy initiatives and a few measures likely to be announced, may soon boost investor confidence and help push up credit growth. In addition, the onset of the festival season is likely to help stimulate demand.
Overall, all the recent sequence of events, both fiscal and monetary, augur well and inspires confidence that the second half of this financial year is likely to be better than the first.
Ashvin Parekh, National Leader, Global Financial Services, Ernst & Young India : While the increase in diesel prices is expected to add to inflationary pressures, it should help in the Government’s fiscal tightening efforts.
More importantly, the regulator is clearly sending a message that concerted fiscal policy action is required to support the monetary policy in controlling inflation.
Going forward, economic as well as bank credit growth is likely to remain affected, while the liquidity release due to CRR cut may take care of advance tax payments, for corporates, the business environment is likely to remain tough.
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