The Reserve Bank decision to slash repo rate by 25 basis points to 6 per cent will perk up the market sentiments and enable a gradual recovery in credit cycle, bankers and analysts said. State Bank of India chairman Arundhati Bhattacharya said, “The RBI decision to cut repo rate was a welcome move and will perk up market sentiments. The policy commentary was nuanced and balanced indicating upside risks to inflation have waned, whereas growth impulses in industry and services are weakening. We are hopeful that this measure should enable a gradual recovery in credit cycle with a revival of demand.”
According to Chanda Kochhar, MD and CEO, ICICI Bank, the prudent approach of the central bank in reacting to incoming data in a calibrated manner will reinforce the confidence amongst global investors. “A number of regulatory and developmental measures like tri-party repo for corporate bonds and enhanced limits for foreign investors using the futures market have also been announced. The formation of a high-level committee to address the information asymmetry in the credit markets will help in enhancing transparency and information availability,” she said.
“The cut in repo rate by the RBI is pro-growth. It might lead to banks reduce their lending rates, thereby, giving an impetus to credit growth, which has been down compared to last year. If the transmission were to happen quickly, consumers are in for a good time with EMIs likely to come down, and lenders likely to come up with festive season offers on loan rates in the ensuing months. Banks could leverage this opportunity to broad-base their credit consumer base further,” said Harshala Chandorkar, COO, TransUnion CIBIL.
Rana Kapoor, MD & CEO, Yes Bank, said, “resumption of easing cycle with RBI’s calibrated 25 bps rate cut after a hiatus of 9-months is a welcome move. The reduction clearly acknowledges downside to inflation pressures. India’s inflation has undergone a structural shift, with the emergence of ‘new normal’ at lower levels.” The RBI’s decision to set up a high level task force for creating a transparent, comprehensive and near-real-time public credit registry and comprehensive credit development reports by the credit information companies will help banks in credit assessment and risk pricing and make the credit market more efficient, said Chandra Shekhar Ghosh, Founder, MD & CEO, Bandhan Bank.
‘Situation warranted steeper cut’
Industry chambers have said the current situation in the country warranted a steeper rate cut of 50 basis points from the RBI to spur growth. Industry chamber CII said the move will give a fillip to growth, especially at a time of benign core inflation print and tepid private investment. “Having said so, CII feels that a steeper cut in interest rate would have been more in consonance with market realities,” it said.
Ficci said the current situation “warranted a steeper cut of 50 bps” as the private investment cycle remains weak and the reduction in the rate will be an investment sentiment booster. Assocham said that even though the 25 bps cut “may not make much of a difference” to the debt servicing burden of the borrowers, especially the over-leveraged corporates, “it certainly improves the sentiment”.
“From the perspective of the real estate industry, any rate cut by the RBI will boost the sentiment and has a positive effect on sales of residential real estate. While a cut of 50 bps would have been welcome, a cut of 25 bps after four straight reviews when rates remained constant, is a welcome step,” said Niranjan Hiranandani, president, NAREDCO West. PHDCI opined that reduction in the key lending rate will not only reduce the costs of doing business but also enhance exporters’ competitiveness in the international market.