SLR cut will provide growth-supportive liquidity to the system: SBI chief

In its third bi-monthly monetary policy, the Reserve Bank of India left the repo rate unchanged but cut the statutory liquidity ratio. In view of the upside risks to inflation, the RBI said it is appropriate to continue maintaining a vigilant monetary policy stance as in June, while leaving the policy rate unchanged.

On the SLR cut, the central bank said that with the Budget renewing commitment to the medium-term fiscal consolidation roadmap, space has been opened up for banks to expand credit to productive sectors.

Excerpts from bankers’ reactions to the monetary policy:

Arundhati Bhattacharya , Chairperson, State Bank of India: The RBI policy statement strikes a slightly hawkish tone with a firm eye on 6 per cent inflation target by January 2016.

The 50-basis-point cut in SLR is expected to provide roughly ₹40,000 crore growth-supportive liquidity to the system and the move is not intended to trigger an interest rate cut. The held-to-maturity (HTM) ceiling is being brought down by 50 bps to 24 per cent of NDTL.

As all the major banks are holding less than 24 per cent in HTM, there will not be any immediate impact. We believe the retail inflation trajectory will be significantly benign in the current fiscal, but beyond November 2014, the inflation trajectory will be on the upside, though the 8 per cent inflation target by January 2015 looks sacrosanct.

The 6 per cent retail inflation target looks challenging (remember, 6 per cent is the upper confidence level of the median RBI target at 4 per cent), and to that extent, the RBI will hold rates at least till that time it is not breached.

Banks will thus need to factor possibly a prolonged policy pause in their decision-making.

KR Kamath , Chairman, IBA, and CMD, Punjab National Bank: The RBI, though acknowledging the efforts of the Government to maintain fiscal discipline, has continued with a cautious tone on inflation and other uncertainties surrounding the global economy. Retail inflation is now well within the RBI’s target of reaching 8 per cent by January 2015.

At the same time, its ongoing trajectory depends on the outcome from the full harvest season. Hence, the repo rate has been kept unchanged to indicate that monetary loosening is not warranted at this juncture.

Various measures taken by the Government on the policy front have had a positive impact on the revival of the sentiments in the domestic economy. Taking cognisance of this, the RBI has maintained the GDP growth estimate of 5.5 per cent within the range of 5-6 per cent set out in the April projection for 2014-15.

This is indeed a positive signal. The RBI has reduced the SLR from 22.5 per cent to 22 per cent of NDTL from August 9, 2014, and also brought down the ceiling on banks’ total holdings of SLR securities in the HTM category. These two measures basically infuse growth-supportive liquidity in the system.

Chanda Kochhar , MD and CEO, ICICI Bank: The monetary policy statement is a reflection of RBI’s continued commitment towards containing inflation. The policy acknowledges the gradual improvement in economic conditions and the Government’s commitment to fiscal consolidation. The reduction in the SLR is a welcome step as it would make more lendable resources available for various sectors of the economy.

This is a pragmatic policy considering the current macroeconomic environment.

Rana Kapoor , MD and CEO, YES Bank: In support of prospective growth via adequate availability of liquidity, the RBI cut SLR by another 50 bps to 22 per cent of NDTL. This is a positive surprise, and will create the needed potential liquidity to finance credit demand as the economy is seen turning the corner.

Further, with upside risks to inflation trajectory from weak monsoon and food price pressures, I think the RBI will have to wait a few months to effect a rate cut in order to truly support growth.

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