Cautious RBI cuts repo by 25 bps,says little space for more easing

Keeping the cash reserve ratio (CRR) — the portion of deposits to be kept with the RBI — unchanged,RBI Governor D Subbarao said,“Bankers had told me transmission of this policy and the previous policies could happen in the next two or three months.” Announcing the Annual Monetary Policy statement,Subbarao said monetary policy cannot afford to lower its guard against the possibility of resurgence of inflation pressures. Monetary policy will also have to remain alert to the risks on account of the current account deficit (CAD) and its financing,which could warrant a swift reversal of the policy stance. He assured that the RBI will endeavour to actively manage liquidity to reinforce monetary transmission,consistent with the growth-inflation balance. “Around Rs 5 trillion (Rs 5,00,000 crore) is available under various financing windows,” he said.

Commenting on the RBI’s monetary policy for the current financial year,State Bank of India chairman Pratip Chaudhuri said,“There is no scope for a lending rate cut now. A reduction in repo rate,frankly,doesn’t matter. The impact of a CRR cut will be five times that of a repo rate cut.”

The RBI pegged the growth rate for current fiscal at 5.7 per cent,much below the finance ministry’s projection of 6.1 to 6.7 per cent. The RBI assessment is that activity will remain subdued during the first half of this year with a modest pick-up in the second half,subject to appropriate conditions ensuing.

On the price front,it said WPI inflation is expected to be range-bound around 5.5 per cent during 2013-14. This assessment factors in the domestic demand-supply balance,the outlook for global commodity prices and the forecast of a normal monsoon. It is critical to consolidate and build on the recent gains in containing inflation. Accordingly,the RBI will endeavour to condition the evolution of inflation to a level of 5 per cent by March 2014.

Subbarao said,“The recent monetary policy action,by itself,cannot revive growth. It needs to be supplemented by efforts towards easing the supply bottlenecks and improving governance.”

Seeking a Bolder signal

Let’s accept what has been done today and see what future holds… If inflation trend down further… that will decide scope for further policy action

P Chidambaram,

Union Finance Minister

There is no scope for a lending rate cut now. A reduction in repo rate,frankly,doesn’t matter. The impact of CRR cut will be five times that of a repo rate cut

PRATIP CHAUDHURI,

Chairman,State Bank of India

The present downward movement in deposit rates will not be sustained. And a lending rate cut will depend only on the movement of cost of funds

CHANDA KOCHHAR,

Managing Director & CEO,ICICI Bank

The overnight borrowings need to come down to the comfort level of Rs 60,000 crore before we see a decline in the deposit rates

ADITYA PURI,

Managing Director,HDFC Bank

The decision of RBI to cut the policy rates by 25 basis points sends a strong signal…However,the given economic conditions required bolder intervention

S GOPALAKRISHNAN,

President,Confederation of Indian Industry

Kick starting investments would be the key to give an impetus to growth… There has also not been improvement in the credit disbursal to industrial sector

Naina Lal Kidwai,

President,FICCI

NEW MEASURES

CURBS ON GOLD IMPORTS:

* The RBI restricts the import of gold on consignment basis by banks in order to meet the genuine needs of exporters of gold jewellery.

* Restricts the facility of advances against the security of gold coins per customer to gold coins weighing up to 50 grams.

SME ADVANCES:

* More than doubled the limit for MSME advances to the services sector to Rs 5 crore from Rs 2 crore. Loan limit hiked to Rs 5 crore from the earlier Rs 1 crore in case of lending to dealers of fertilisers,pesticides,seeds,cattle feed and agricultural implements.

DEBT REVAMP:

The RBI will issue prudential guidelines on restructuring of advances by banks and financial institutions based on the Mahapatra Committee recommendations during the month.

UNHEDGED FOREX

EXPOSURE:

* The RBI has decided to increase the risk weights and provisioning requirements on banks’ exposure to corporates on account of unhedged forex exposure positions.

BANKING STRUCTURE:

* The RBI is in the process of preparing a discussion paper on the banking structure covering issues such as consolidation of large sized banks,the desirability and practicality of small banks as vehicles for financial inclusion,the need for a licensing regime for investment banks,and conversion of urban cooperative banks into commercial banks.

PAYMENT SYSTEM:

* Non-bank authorised entities allowed to be part of the payment system infrastructure,and a discussion paper to mitigate concentration risk.