RBI unlikely to tinker with rates

RBI unlikely to tinker with rates
The Financial Express, July 24, 2009, Page 21

Press Trust of India, Mumbai

Surplus liquidity in the banking system and low demand for credit might prompt the Reserve Bank of India (RBI) to maintain a status-quo in its key rates, bankers have said.

In the quarterly review of its annual monetary policy on Tuesday, the central bank is also likely to lay out a more clear road map to conduct the government borrowing programme in a smooth manner and may hike the GDP and inflation forecast for FY10, they said.

“There is enough liquidity in the banking system, even though, they may keep headroom to lower the CRR (cash reserve ratio), any cut is unlikely in the current policy. It may leave the repo and reverse repo rates unchanged,” Uco Bank CMD SK Goel said.

Given the difficult market conditions, the apex bank may relax the NPA norms for stress-ridden sectors and extend the deadline for loan restructuring, Goel said.

The possibility of hiking the SLR (statutory liquidity ratio) requirement of banks to 25% from the current 24% cannot be completely ruled out, he added.

To arrest the slowdown in the economy by stimulating demand, the apex bank has trimmed its CRR to 5%, repo and reverse repo rates to 4.75% and 3.25% respectively since October last year.

“RBI may lower the credit and deposit targets for banks as it is difficult to meet those in the prevailing conditions,” Bank of Baroda chief economist Rupa Rege Nitsure said.

In its annual monetary policy, the central bank had set the credit target for banks at 20% and deposit base at 18%. With the economy showing signs of recovery, there are chances of the central bank reviewing its GDP and inflation targets for the fiscal to 6-6.5% and 5%, respectively, as against 6% and 4.5% projected earlier, Nitsure said.

The central bank is widely expected to come out with a clearer picture on how to go about the massive government borrowing programme to cause less disruptions in the market.

A slew of measures are likely to alleviate the pressure on banks on account of large defaults, Kotak Mahindra Bank’s Group Head of retail liabilities KVS Manian said.

This may include the extension of loan restructuring facility till December, Manian said.

Bankers, in a meeting with the RBI Governor D Subbarao, had sought extension of loan restructuring facility till December against the earlier deadline of June 30.

They also wanted the central bank to ease the NPA norms in certain sectors, particularly infrastructure. RBI deputy governor KC Chakrabarty has recently said RBI’s effort was to ensure a stable and benign interest rate regime, comfortable liquidity and adequate credit flow to productive sectors.