Bankers expect RBI to cut CRR and interest rates to boost growth

Bankers expect RBI to cut CRR and interest rates to boost growth

Country's largest lender State Bank of India (SBI) expects the Reserve Bank to further unlock liquidity by reducing Cash Reserve Ratio (CRR) by 0.75 per cent later in the month, that could lead to moderation in lending rates.

Bankers on Wednesday said they expect a cut in the cash reserve ratio (CRR) in the Reserve Bank of India's credit policy review later this month to ease the tight liquidity situation and boost growth.

"My personal stance is that cut CRR. Everything else follows. Lending rate will come down eventually. I would expect 75 basis point cut in CRR," SBI Chairman Pratip Chaudhuri said after the pre-monetary policy consultation of Indian Banks' Association (IBA) with the Reserve Bank.

ICICI Bank CEO and MD Chanda Kochhar, who also attended the meeting, said if policy rates and CRR go down, that will automatically lead to some cooling off of deposit rates along with cutting in lending rates.

"We require (during the year) both, interest rates to go down and liquidity to improve further. And clearly if reduction in interest rate has to be passed on to the customers, then in my view, both the cuts are required (CRR and repo rate)," Kochhar said.

Last month, RBI slashed CRR, the percentage of deposits that banks have to keep with the RBI, from 5.5 per cent to 4.75 per cent. With this, the central bank had infused Rs 48,000 crore into the economy.

The apex bank is eliciting view of stakeholders to formulate the annual monetary policy which is scheduled to be announced on April 17.

The meeting, chaired by RBI Governor D Subbarao, was attended by IBA Chairman M D Mallya and Chairman and chief executives of public and private sector banks here today. RBI on Tuesday met the representatives of industry chambers.

Repo rate, or the rate at which banks borrow from RBI, stands at 8.5 per cent.

Referring to current tight liquidity condition, Kochhar said most of it is likely to get corrected post-April.

"Current tightness (in liquidity) is more of a March-phenomenon. We do expect a large part of the tightness to get corrected as April goes past. Because a lot of Government spending takes place in the month of April, I think there would be an automatic correction to a large extent."

In the current scenario, it is important to give boost to investment and growth, She added.

IBA whose members also had pre-policy consultation with RBI, shared similar views.

"We saw last year that growth was not very substantial. We have seen the overall interest rate scenario reigning high. So, perhaps some policy measures are required to ensure growth is also catered to without compromising on inflation," M D Mallya, IBA Chairman and CMD of Bank of Baroda said.

Mallya said overall liquidity is likely to improve after Government spending starts.

About asset quality, he said things would improve for better as economy started picking up.

Officials of other banks also said they have requested the RBI to emphasise on growth in the current environment.

"There are views concerning reduction in CRR or policy rates so that issues relating to growth can be addressed," Chairman and Managing Director of Canara Bank S Raman said.

Published on: Apr 04, 2012, 7:40 PM IST
Posted by: Surajit Dasgupta, Apr 04, 2012, 7:40 PM IST