Bankers urge RBI to cut rates, relook recast terms

Written by feBureau | Mumbai | Updated: Apr 5 2013, 09:06am hrs
Top bankers on Thursday requested the Reserve Bank of India (RBI) to consider a cash reserve ratio (CRR) cut and to take a relook at the proposed increase in provisions on restructured loans.

The request was made at a meeting of the bankers and the RBI governor D Subbarao ahead of the annual monetary policy review scheduled for May 3.

SS Mundra, CMD of Bank of Baroda, said the bankers' wish list includes a repo rate cut as well as a CRR reduction. But obviously in the present situation there was more emphasis on seeking a CRR cut. We have asked for a 50bps points cut in CRR," he said.

The non-food credit growth slumped to a decade low in 2012-13, falling short of the RBI projection of 16%, as credit demand from companies remained weak.

As on March 22, non-food loans grew by 14.04% year-on-year to Rs 51,66,414 crore, as against a growth of 16.8% in 2011-12. The last time credit growth was this low was in 2001-02 when it grew at 13.2%.

The RBI considers the outstanding loans and deposits as on the last reporting Friday of a financial year for its growth projection calculation.

"Apart from the CRR cut, we asked RBI to take a relook into this issue of increasing the provisioning norms to 5% for restructured accounts. We also discussed about the investment climate in general, said V Iyer, chairman and managing director (CMD), Bank of India .

Following the recommendations of the B Mahapatra committee, set up to study debt recasts, the banking regulator has decided to increase the provisioning requirement for fresh restructured loans from 2.75% to 5% starting from April 2013. In addition, for the existing stock of restructured assets, it was decided to increase the provision from 2.75% to 5% in a phased manner. That is it will be increased to 3.75% in 2013-14 and to 5% in 2014-15.

On the deposits side the bankers acknowledged that the growth numbers for 2012-13 will be lower than earlier projections. However the liquidity constraints are expected to ease with the end of year surge in credit growth now behind us. Bankers were however divided over whether open market operations (OMOs) or a CRR cut would be the best tool to meet the liquidity deficit.

Bankers said that they also held discussions with the RBI Governor on the stress in the system with particularly reference to the many stalled projects.