Considering that the GDP growth at this stage stands lowered to a range of 5 to 5.5 per cent as against 6 to 6.5 per cent at the time of announcement of the policy, much would depend on the optimism placed in the revival of the industrial sector, coupled with sustaining of the growth in the service sector.
For the banking sector, it will continue to be a competitive place for lending to good corporates on sub-PLR rates and managing liquidity and spread through aggressive lending to retail consumers.
The reduction of bank rate by 25 basis points (bps) is in keeping with the widely expected step, thus, reinforcing RBIs commitment to maintain soft interest rate regime.
The expected cut in the statutory savings bank rate by a similar 25 bps, however, has not found a mention in the policy, which could have enhanced the scope for overall reduction in the regulated rates across the market.
It is expected that banks will bring down both the PLR and deposit rates by a similar 25 bps in line with the bank rate cut announced by RBI.
However, expecting an immediate off-take of credit by industrial/commercial sectors may not be forthcoming as experienced in the past due to various inhibiting factors in its revival.
Retailing of Government securities to retail investors has been taken up by public sector banks with keen interest but limited success.
During the consultation held by RBI with banks quite a few suggestions have been made to remove the rigidities and make G-Secs attractive to individual investors. Implementation of some of these suggestions in the review of the monetary policy would have helped in the present juncture.
The reduction in the export rates will certainly help standing exporters of repute and will further the competition for healthy export accounts.
It may, however, be noted that this will mean that export credits today is subsidised far more that even other priority sector credit to major activities. Exporters will have to respond to this gesture.
V Leeladhar, CMD, Union Bank of India