BANKERS PITCH FOR CUT IN KEY POLICY RATES TO PUSH GROWTH

Bankers on Wednesday suggested that the Reserve Bank of India should cut key policy rates to promote growth.

In their pre-monetary policy interaction with the RBI top brass, a section of the bankers expressed the view that the repo rate (the interest rate at which banks borrow from RBI) should be cut by 25 basis points.

Some others were of the opinion that the amount of cash that banks are required to mandatorily park with the central bank (CRR) should be pared by 75 basis points. A third school of thought pitched for a cut in repo rate as well as CRR.

The abovementioned measures could bring down borrowing costs, kick-start investments and promote growth. In the inflation versus growth matrix, growth moderation is clearly emerging as a bigger concern, said State Bank of India Chairman, Mr Pratip Chaudhuri.

According to Mr Shyam Srinivasan, MD and CEO, Federal Bank, said that bankers present were divided over whether the RBI should cut reverse repo rates or Cash Reserve Ratio.

Mr M.D. Mallya, Chairman and Managing Director, Bank of Baroda and Chairman, Indian Banks' Association, said the major concern for the RBI was to manage inflationary pressures and at the same time ensure that growth outlook is not affected.

“In the last year growth was not substantial and overall interest rates were high. So, the policy announcement would ensure growth while tackling inflationary pressures,'' Mr Mallya said.

CREDIT DEMAND

He said that credit demand is slow because of the general economic deceleration. About the liquidity situation he said that once the government starts spending, money would come into the system.

SBI CHIEF PITCHES FOR CRR CUT

Mr Chaudhuri said the RBI should cut the cash reserve ratio (CRR) by 75 basis points.

Once the CRR is cut, banks can pass on the benefit to borrowers by bringing down the spread they charge over the benchmark Base Rate. Then, SBI would reduce the spread over the Base Rate for loans where the interest rate is over 13 per cent, he said.

Currently, the CRR is at 4.75 per cent. To tackle liquidity tightness in the banking system, the RBI has reduced the CRR by 125 basis points (50 basis points effective January 28 and 75 basis points effective March 10), injecting primary liquidity of about Rs 80,000 crore. 100 basis points is equivalent to one percentage point.

India's largest bank plans to cut the spread on SME loans. In late February, the bank had cut the interest rates on education loans by 25-100 basis points.

SOURCE: http://www.thehindubusinessline.com/industry-and-economy/banking/article3280785.ece