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State Bank of India Chairman Pratip Chaudhuri on Wednesday came down heavily on the measures taken by the Reserve Bank of India to curb volatility in the foreign exchange market.
The central bank recently placed a cap of Rs 75,000 crore on daily borrowings by banks from the RBI to rein in volatility in the forex market.
The RBI further increased the interest rate related to the marginal standing facility (MSF) to 10.25 per cent from 8.25 per cent.
According to Chaudhuri, it would be better to make money more expensive rather than making it unavailable.
The RBI’s move has “choked liquidity” and pushed up short-term rates, Chaudhuri told newspersons on the sidelines of a banking conclave organised by the Federation of Indian Chamber of Commerce and Industry here on Wednesday.
NOT TRANSPARENT
Stating that the RBI’s move lacked transparency, he said: “Please say the rupee is under pressure and I am raising the interest rates, so you can increase the repo rate from 7.25 per cent to whatever level you want. But what has been done now is that the repo rate remains at 7. 25 per cent but no amount is available. The real rate under the MSF is 10.25 per cent. It is much better to say the repo is 10.25 per cent rather than saying different things at different places.” The central bank’s move to curb volatility in forex market is not likely to push up lending rates, he said.
Even while the move might push up short-term rates, it is not likely to impact interest rates in the long term, particularly for banks that rely on retail deposits.
“Short-term rates have gone up. However, our costs are not likely to move up as we are dependent on retail funding. We do not have any short-term wholesale borrowing,” he said.
Though there is a tightness of liquidity, many people have been encashing their investment in liquid mutual funds and coming to banks, he said.
State Bank of India has received Rs 5,000-6,000 crore in the last few days as redemption proceeds.
The RBI’s move will also not impact the credit demand as it depends on long-term rates. “Long-term rates have not been impacted, hence we do not see an impact on credit demand,” he said. SBI expects 20-25 per cent growth in advances this fiscal, he added.
Merger
SBI will merge one of its five associate banks with itself by the end of this fiscal, Chaudhuri said. The bank is expected to incur capital expenditure of Rs 1,000-2,000 crore on this.
“A committee has been set up which is looking into it (merger). It will come up with a report in a month. After that we will decide which of the banks will be merged first,” he said.
It would take around two years for SBI to digest one merger, after which it will be ready for the second merger, he added.
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