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Cut CRR to fuel positive sentiment: Chaudhuri

SBI chief pushes for a 50 basis point cut

Written by ENS Economic Bureau | Mumbai |
July 28, 2012 12:34:55 am

Days before the Reserve Bank of India is set to hold its first quarter monetary policy review on July 31,State Bank of India chairman Pratip Chaudhuri made a strong case for a 50 basis point cut in the cash reserve ratio (CRR) and argued that it will have a cooling effect on the interest rate for consumers. CRR is the proportion of deposits banks are required to park with the RBI.

Chaudhuri said that the current rates are not within the comfort zone and added that the real measure of liquidity perceived by the Street is not the liquidity adjustment facility (LAF),but the rates on certificates of deposit (CD).

“The CRR cut did not come last time and there is a strong case this time around. It will have a cooling effect on the interest rates for the customers,” said Chaudhuri adding that a 50 basis point (100 basis point is 1 percentage point) cut is required. The CRR currently stands at 4.75 per cent.

He also said that Indian interest rates are among the highest in the world and it hurts the competitiveness of Indian companies. “The rupee loan for Indian corporates is around 11 per cent while that for a Chinese equipment manufacturer is only 4 per cent. So the companies in India face competition on the interest rate front itself,” said Chaudhuri.

While economic growth has been on a decline and corporates not enthusiastic about capital expenditure,Chaudhuri said that even as there may be issues such as land acquisition,environment clearance that may impact growth,a cut in interest rates will improve sentiments.

“Interest rates is a necessary but not a sufficient criteria for growth. The rate cut will however bring some enthusiasm and improve the sentiments,” added Chaudhuri.

Barely two days ago SBI successfully raised $1.25 billion from the international market through five year medium term notes (MTN) priced at a spread of 375 basis points over the 5 year US treasury. The bonds carry a coupon rate of 4.125 per cent.

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