Loans not to get cheaper as bankers rule out rate cut after Raghuram Rajan cuts SLR

Jun 03 2014, 22:00 IST
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Bankers said the RBI's decision to hold key rates, coming after a decisive mandate received by the Narendra Modi govt, was on expected lines. Reuters Bankers said the RBI's decision to hold key rates, coming after a decisive mandate received by the Narendra Modi govt, was on expected lines. Reuters
SummaryBankers cite RBI Guv Raghuram Rajan's decision to hold key rates as reason...

Bankers today said the RBI Guv Raghuram Rajan's decision to hold key rates, coming after a decisive mandate received by the Narendra Modi government, was on expected lines and interest rates won't change even though the central bank's SLR cut infuses additional liquidity into the system.

"This was very much on expected lines and what is important is the consistency which the RBI has shown in its moves, like the focus on the consumer price inflation number and a clear articulation of the guidance," Bank of Baroda Chairman and Managing Director S S Mundra said.

Chanda Kochhar, who heads ICICI Bank, the largest private sector lender, described the policy as very "balanced" and "pragmatic", coming in the wake of the strong electoral mandate.

"The decision to hold the rates reflects the current level of inflation as well as the expectation of policy and administrative actions from the government in the coming months to address inflation as well as boost growth," Kochhar said.

On the 0.5 per cent reduction in the statutory liquidity ratio (SLR), Mundra said it is not very surprising as the RBI had already hinted that in the medium to long term, its intention was to bring it down to help productive sectors.

Kochhar concurred, saying the SLR reduction is a welcome signal of the commitment to reduce pre-emption of resources over time and create more room for banks to finance growth.

When asked if the decisions may lead to rate cuts, Mundra said most banks carry excess SLR securities and hence the move to cut it will not have any impact on the banks' cost of funds.

Indian Overseas Bank Chairman and Managing Director M Narendra said his bank is not considering any rate change even though he gets about Rs 1,600 crore released because of the SLR cut and the decision to reduce the export credit refinance (ECR) limit to 32 per cent from 50 per cent.

He said the ECR decision was on expected lines as the RBI had already said it wants to make it market-linked over time.

Shailendra Bhandari, Managing Director and Chief Executive Officer of private sector lender ING Vysya called it a "neutral to dovish" policy announcement.

"We see stability and steady policy stance even as the overall approach of the policy is neutral to dovish," he said.

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