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The heightening risk to inflation has prompted the RBI to keep policy rates unchanged in the first quarter review of the monetary policy. This is even as growth is slowing.
The central bank, however, cut the Statutory Liquidity Ratio (SLR) from 24 per cent to 23 per cent of deposits so that banks which are facing a deficit can tide over it.
Bankers say they will soon take a call on cutting deposit and lending rates by convening meeting of their asset-liability committees.
‘Balanced action’
According to Mr Alok Misra , Chairman, Indian Banks’ Association, and Chairman and Managing Director, Bank of India, “It was a very balanced policy action in view of the global economic outlook. An SLR reduction will add about Rs 66,000 crore to the system which will lead to increased credit flow.”
State Bank of India (SBI) Chairman, Mr Pratip Chaudhuri , said the RBI has not disappointed the banks in its last two policy announcements. He said the benefit of the SLR cut can be passed on to the retail sector.
The SBI chief observed that resources unlocked on account of the SLR cut would largely go to the retail sector as large term loan proposals are very few across banks and working capital demand from good corporates is already low. “Hence, for a bank like ours, the option is to accelerate retail credit growth. There could be greater competition in retail and this can be backed by a rate cut…So there could be a reduction in retail lending rates,” Mr Chaudhari added.
The SBI chief does not see a reduction in short-term deposit rates due to competition.
Growth oriented
Ms Chanda Kochhar , Managing Director and CEO, ICICI Bank, said: “The move (SLR cut) will help to make credit available to retail and corporate borrowers and also keep interest rates under control. The monetary policy statement comes in a challenging environment globally.”
The bigger impact of SLR is that it will help banks to continue providing credit and not worry about contributing to SLR, which in a way is a growth oriented, Kochhar said.
The small cut in the SLR rate had “an element of surprise”, but most public sector banks already have liquidity well above the new 23 per cent level, said Mr S. Raman , Canara Bank’s Chairman and Managing Director. Currently, most PSBs keep it at 27-29 per cent, he said.
However, the lower SLR could prove positive in the coming months when the demand for credit could rise, he said.
Under the current circumstances, there was no option than to keep the other rates on hold, he said.
On expected lines
Mr H. S. Upendra Kamath , Vijaya Bank’s CMD, said the SLR cut would offset any worry over lower liquidity to productive sectors. Tuesday’s policies, he said, were “on expected lines” considering the sticky trend of inflation.
The Chairman and Managing Director of Corporation Bank, Mr Ajai Kumar , said that liquidity in the system will improve further, and there may be some respite on the interest rate front.
Mr P. Jayarama Bhat , Managing Director, Karnataka Bank, said the RBI’s stand indicates that it is still wary about the fiscal conditions and inflationary expectations in the domestic economy. In the wake of deficient monsoon, the regulator’s commitment to contain inflation will help the economy in the long run.
Terming it as a ‘pleasant surprise’, City Union Bank’s Chief Executive, Mr N. Kamakodi , felt that the move would benefit every stakeholder.
“It’s a welcome move,” said the MD of Karur Vysya Bank, Mr K. Venkataraman . Is KVB looking to effect a reduction in rate? “We will take a call. We have been reducing the margins selectively,” he said, and immediately clarified that the bank did not effect a cut in the base rate.
Mr V. P. Iswardas , MD of Catholic Syrian Bank, said: “While the move will help infuse liquidity, it remains to be seen how it will trigger growth, for credit growth is already truncated.”
Dr V. A. Joseph , Chief Executive of South Indian Bank, said “the growth in advances has been very slow compared to the previous year, but things should ultimately improve. The monsoon is making things more uncertain,” he added.
According to private sector player ING Vysya Bank’s economist, Ms Upasna Bhardwaj , “RBI’s action going forward is expected to remain a function of evolving inflation-growth dynamics, with the data prints on inflation and Q1-FY13 GDP figures playing a critical role in determining their policy stance in September.”
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