The Reserve Bank on Wednesday said targeted interventions like reducing standard asset provisions for home loans which will make them cheaper, will help revive the sagging growth rather than rate cuts.
"What is likely to work better than interest rate policy in responding to growth challenges is the targeted intervention to create greater lending capacity for the healthier sectors of the economy that have recently slowed down," Deputy Governor Viral Acharya told reporters.
It can be noted that the GDP growth slipped to 6.1 per cent for the January-March 2017 period, as against widespread wishes to take it above 7 per cent.
Acharya was speaking after announcement of the second bi-monthly policy, wherein the RBI lowered its FY18 growth estimate by 0.10 per cent to 7.3 per cent on a GVA basis.
The RBI decided to decrease the statutory liquidity ratio (SLR) or the amount of deposits invested in government bonds by 0.5 per cent to 20 per cent and also introduced a slew of advantages making the housing loans cheaper.
It reduced the standard assets provisions on individual housing loans to 0.25 per cent and also lowered the risk weights on such lending.
"As a countercyclical measure, the LTV (loan to value) ratios, risk weights and standard asset provisioning rate for individual housing loans" have been reviewed from today, the RBI said in the second bi-monthly policy statement.
The standard asset provisions, or the amount of money to be set aside for every loan made, has been lowered to 0.25 per cent from the earlier 0.40 per cent, which will help reduce the interest rates on home loans.
It also eased the risk weights for certain categories of loans, which will help banks on the capital adequacy front, and enable them to make more loans.
"As the government and the Reserve Bank embarked on resolving the twin debt overhang problems, we felt that a more targeted interventions that can unfreeze credit to help the stress-free but recently slowing sectors of the economy, borrow at better terms are likely to work better," Governor Urjit Patel said.
Acharya said that an investment slowdown has been on since Q1FY17 and also conceded that the RBI's accommodatory stance could do little to turn things.
"The accommodative policy of 2015 and 2016 failed to revive investment as it did not get fully transmitted by the stressed banks to the indebted sectors," he said, adding that there is a need for better transmission.
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