RBI likely to impose curbs on amount banks park with it
The Financial Express, April 18, 2009, Corporates & Markets, Section II, Page 1
Bank chiefs expect the Reserve Bank of India to put a cap on the extent the banks can park funds in the reverse repo window, as a quantitative measure to direct liquidity to industry on Tuesday. Governor of RBI, D Subbarao, will announce his annual monetary and credit policy for 2009-10 on April 21.
JM Garg, chairman & managing director , Corporation Bank, said he did not expect any cut in cash reserve ratio--the amount the RBI impounds from the commercial banks.
There is enough liquidity in the system, and still credit offtake is at 17% as per RBI data. “People , who were earlier bullish on their business expansion plans, have put their plans on hold,” he said.
According to him there could be some cap on the extent of funds the banks park with RBI. The idea may be to discourage banks to park their fund with the RBI. “In fact, if it happens then it will give a further signal for banks to cut their interest rates,’’ he suggested.
Rana Kapoor, managing director of Yes Bank explained that given the market conditions at present, the real interest need to see a significant reduction in the country.
“I hope, RBI would engineer a CRR change on April 21. Although there is ample liquidity at present, if CRR cut is announced by the regulator, it will invariably stimulate the Indian banking system as funds parked with RBI under CRR requirement do not fetch interest income to the banks,’’ he said.
A significant reduction in the CRR to a low of 3% is needed as the country badly needs significant capital of a longer term nature to be ploughed back into growth, he observed.
Abheek Barua, chief Economist, HDFC Bank said , “We expect the RBI to cut its repo and reverse repo rate as a signaling tool to re-iterate its pro-growth stance. This might not necessarily translate into an immediate easing of deposit and loan rates but the current macro conditions require further reiteration of the RBI’s commitment to growth.
With the reverse repo rate at an all time low of 3.5%, the repo rate at 5% and the CRR at 5%, the room for big-ticket rate cuts is fast shrinking. The emphasis the world over has veered towards managing monetary conditions by controlling the “quantity” of money rather than making direct changes in its price, he explained.
The outlook for growth is deteriorating rapidly while inflationary pressures have receded to give way to concerns over deflation. The monetary transmission mechanism within the Indian economy has so far been somewhat sluggish. Aggressive monetary easing undertaken in the recent past has not translated to a proportional decline either in deposit or lending rates.
The Financial Express, April 18, 2009, Corporates & Markets, Section II, Page 1
Bank chiefs expect the Reserve Bank of India to put a cap on the extent the banks can park funds in the reverse repo window, as a quantitative measure to direct liquidity to industry on Tuesday. Governor of RBI, D Subbarao, will announce his annual monetary and credit policy for 2009-10 on April 21.
JM Garg, chairman & managing director , Corporation Bank, said he did not expect any cut in cash reserve ratio--the amount the RBI impounds from the commercial banks.
There is enough liquidity in the system, and still credit offtake is at 17% as per RBI data. “People , who were earlier bullish on their business expansion plans, have put their plans on hold,” he said.
According to him there could be some cap on the extent of funds the banks park with RBI. The idea may be to discourage banks to park their fund with the RBI. “In fact, if it happens then it will give a further signal for banks to cut their interest rates,’’ he suggested.
Rana Kapoor, managing director of Yes Bank explained that given the market conditions at present, the real interest need to see a significant reduction in the country.
“I hope, RBI would engineer a CRR change on April 21. Although there is ample liquidity at present, if CRR cut is announced by the regulator, it will invariably stimulate the Indian banking system as funds parked with RBI under CRR requirement do not fetch interest income to the banks,’’ he said.
A significant reduction in the CRR to a low of 3% is needed as the country badly needs significant capital of a longer term nature to be ploughed back into growth, he observed.
Abheek Barua, chief Economist, HDFC Bank said , “We expect the RBI to cut its repo and reverse repo rate as a signaling tool to re-iterate its pro-growth stance. This might not necessarily translate into an immediate easing of deposit and loan rates but the current macro conditions require further reiteration of the RBI’s commitment to growth.
With the reverse repo rate at an all time low of 3.5%, the repo rate at 5% and the CRR at 5%, the room for big-ticket rate cuts is fast shrinking. The emphasis the world over has veered towards managing monetary conditions by controlling the “quantity” of money rather than making direct changes in its price, he explained.
The outlook for growth is deteriorating rapidly while inflationary pressures have receded to give way to concerns over deflation. The monetary transmission mechanism within the Indian economy has so far been somewhat sluggish. Aggressive monetary easing undertaken in the recent past has not translated to a proportional decline either in deposit or lending rates.
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