Top bankers on Wednesday said growth was expected to show an uptick in the next two quarters and the RBI’s monetary policy review has provided more clarity on the liquidity framework.
SBI chairman Rajnish Kumar said the RBI decision to maintain status quo was in consonance with market expectations. “The policy assessment is fairly balanced and pragmatic with inflation and growth both expected to show an uptick in next two quarters,” Kumar said.
Chanda Kochhar, MD and CEO, ICICI Bank, said the RBI has displayed prudence in highlighting adverse risks to the inflation trajectory. “It has also taken cognizance of further improvement in growth prospects on account of various structural reforms implemented by the Government including bank recapitalisation. It is heartening to note that the RBI has also communicated greater clarity on the liquidity framework indicating that it is ready to deploy both short term and durable tools to absorb or inject liquidity as the need arises,” she said. The RBI has retained the growth forecast at 6.7 per cent for 2017-18 even through the gross value added (GVA) in the second quarter rose to 6.3 per cent.
Dinabandhu Mohapatra, MD & CEO, Bank of India, said, “for the banking sector as a whole, credit growth is slightly higher than deposit growth, signaling an end to easy liquidity conditions. Taking a cue, some banks increased the rates on wholesale deposits. Both domestic and global growth is on a rising trend. However, higher growth overseas also carries the risks of upward movements in commodity prices, not really good news for a major oil importer like India.”
According to him, the MPC would have probably kept this aspect in mind as well. Moreover, interest rate policy should also ensure that yield generating opportunities available to overseas funds are not wiped out significantly or else there is a risk of fund outflows and a steep rupee depreciation.
“The $ 31 billion forward position built up by RBI may be seen as a cushion against such an eventuality. Growth estimates, however, has been kept unchanged. India is now at a juncture where on the real sector, Government is undertaking reform measures while the MPC ensures monetary stability through its rate setting policies,” Mohapatra said.
Bankers welcomed the RBI decision to permit the overseas branches and subsidiaries of Indian banks to refinance external commercial borrowings (ECBs) of ‘AAA’ rated corporates as well as Navratna and Maharatna public sector units by raising fresh ECBs, stating that the move will help banks to “retain quality good assets”. Currently Indian corporates are permitted to refinance their existing ECBs at a lower all-in-cost. The overseas branches and subsidiaries of Indian banks are not permitted to extend such refinance.
“The decision to allow overseas subsidiaries of domestic banks to refinance AAA-rated corporates will provide a fair and just opportunity to banks to book and retain good quality assets,” Kumar said.
Mohapatra said the proposal to rationalize MDR charges and permitting overseas subsidiaries and branches of Indian banks to refinance ECBs of AAA rated/ Navaratna companies are welcome developments.