We’ve started passing on the benefits: bankers

With policy rate cut being on expected lines, banks have begun lowering their base rate with State Bank of India, Allahabad Bank, Dena Bank and Punjab and Sind Bank being the first to get off the block.

TM Bhasin, Chairman, Indian Banks’ Association and Chairman and MD, Indian Bank, said a repo rate cut of 25 basis points with immediate effect is on the expected lines. Already banks have started passing the benefits of the previous two cuts by reducing the base rate. Further, they have reduced interest on deposits to reduce the cost of funds. Going forward, with adequate liquidity in the system, banks are likely to pass on the benefits of this rate cut to the customers.

The tone of the policy is cautious and is reflected in a reduction in the GDP projection for 2015-16 from 7.8 per cent to 7.6 per cent. Importance of managing the supply side lacunae in checking inflation is also given a thrust in the policy.

Arundhati Bhattacharya, Chairman, State Bank of India, said, “The decision to cut the repo rate is welcome and timely. Growth considerations should now occupy centre stage and we should be looking for a better balance between monetary and fiscal policy, through targeted public spends.”

Chanda Kochhar, MD and CEO, ICICI Bank, said the rate cut is a welcome step considering the need to further improve domestic demand and revive credit growth. The uncertainties cited in the policy statement present a pragmatic evaluation of economic conditions warranting a guarded approach, particularly with regard to risks to inflation and impact of monsoon. In summary, the policy stance is in alignment with the current economic conditions and the issues that require structural policy changes.

Rana Kapoor, MD and CEO, Yes Bank and President of Assocham, said the forward guidance (in the policy) carries a ‘neutral bias’. The nuanced stance of front loading the rate action has been driven by the need to spur the lending and investment cycles.

With domestic real interest rates having risen over the last one year and being amongst the highest in comparison to global peers currently, I think there is scope to cut the nominal policy rate even further.

Additionally, for a more effective transmission mechanism, liquidity benefit could have been provided through a relaxation in daily CRR maintenance without necessarily reducing the CRR.

Arun Tiwari, Chairman and Managing Director, Union Bank of India, said the RBI Governor has made it amply clear that the rate cut is front loaded. This has to be seen in the backdrop of the estimates that by January 2016 inflation may go up to 6 per cent, US Fed may act (by raising rates) in December, and the further lowering of monsoon forecast. So, these three things put together, there will be no rate cut (by RBI) till December. When the RBI cut the interest rate twice (once in January and once in March), we were the first to respond with a 25 basis points lending rate cut in January. In this quarter we don’t foresee a rate cut but we will take a call in the next quarter.

Mushtaq Ahmad, Chairman of Jammu and Kashmir Bank, said the cut is an act of rebalance towards checking inflation and growth. RBI’s inflation targeting path could help further monetary easing, and show meaningful recovery in an economy that is facing headwinds both in the external and domestic demand front. Besides, a cut in the interest rate will boost our efforts in expanding our corporate and SME lending. We also look to pass on the benefits of the cut to the borrowers.

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