While announcing the latest package, RBI governor D Subbarao commented on various aspects of the economy. Excerpts:ON INTEREST RATES“We hope that the commercial banks will get the signal and act accordingly. It is a matter of time before banks take a decision on interest rates on home loans. Monetary transmission takes time. The situation is presently uncertain, and there is a tendency of risk aversion. However, as there is adequate liquidity in the system now and the demand for money is also falling, interest rates will also move down.”ON INFLATION“Headline inflation has fallen sharply. Clearly, falling commodity prices have been the key drivers behind the disinflation; however, some contribution has also come from slowing domestic demand.”ON DOWNTURN“Several countries, notably the US, the UK, the euro area and Japan are all officially in recession. More worryingly, current indications are that the recession will be deeper and the recovery longer than earlier anticipated. Once the crisis is behind us, and calm and confidence are restored in the global markets, economic activity in India will recover sharply.” ON LIQUIDITY“The measures put in place since mid-September 2008 have ensured that the Indian financial markets continue to function in an orderly manner. The cumulative amount of primary liquidity made available to the financial system through these measures is over Rs 3 lakh crore. This sizeable easing has ensured a comfortable liquidity position starting mid-November 2008.”What the RBI didn’t doSLR CUT: It was widely expected that the apex bank might think of reducing the statutory liquidity ratio (SLR is the sum banks have to hold in government bonds) like the time it did last time bringing it down from 25 per cent to the present 24 per cent. “The SLR at its present level is serving the system well and we are not immediately contemplating any change in the SLR requirements,” said Subbarao.CRR CUT: Though banks had been highlighting that high cost of funds is not allowing them to cut rates, the RBI resisted from using the tool this time. Bankers and industry captains say that a cut in cash reserve ratio (the portion of deposits that banks have to keep with the RBI) eases their cost of funds. “It is incorrect to say we have refrained from using the CRR tool. From 2003 to November 2008, we have brought down the CRR from 9 pc to the present 5.5 pc. These reductions have added Rs 1,40,000 crore,” said Subbarao.Bankers welcome cut“Interest rates are expected to soften with these measures. Another important announcement is the concept of restructuring of loans for the corporate sector. These measures are critical for bankers to support and stand alongside our borrowers in these turbulent times.”Chanda Kochhar, CFO and joint MD, ICICI “Banks would revisit interest rate on lending, going by various proactive measures by RBI and the government. Banks have to play a role in making available credit affordable to the common man. The short-term borrowing would become less expensive.” TS Narayanasami, CMD, Bank of India“We are waiting for a reduction in the bank interest rates as that will help the institution to lower its cost of funds. As soon as it happens — and that is likely to happen in the near future — we will be able to lower our lending rates.”Keki Mistry, MD & vice-chairman, HDFC“The interest rate scenario is likely to go southward. In my bank’s case, we will assess the liquidity before taking a call. The RBI's move to restructure NPAs beyond 90 days is a good sign.”MD Mallya, CMD, BoBNOT ENOUGH, SAY CHAMBERS “The monetary measures need to be supplemented by a fiscal stimulus package to address the specific requirements of sectors, particularly textiles, chemicals, automobile and transportation.” Chandrajit Banerjee, director-general, CII“The rollback (of rate) needs to be to 2004 levels. Further, it is clear that to restart the economic momentum, the accompanying fiscal steps are critical and we will wait to see them unfold tomorrow.” Rajeev Chandrasekhar, president, Ficci“While the cut in repo and reverse repo rate would give some relief to interest sensitive sectors like automobile, real estate and infrastructure, it is not enough now as the economic situation calls for drastic fiscal measures.”Sajjan Jindal, president, AssochamYes Bank cuts PLRYes Bank today slashed its prime lending rate by 0.50 pc within hours of RBI cutting key short-term lending and borrowing rate by 100 basis points. This will bring down the private lender’s PLR to 16.5 per cent. More bankers are expected to follow the signal for the southward movement of lending rates.
