Despite number of initiatives taken by the Reserve Bank of India (RBI) in the last few months coupled with the government?s stimulus packages, there is still a headroom for RBI to ease rates through monetary policy. Similarly, there is also a scope for banks to cut deposit rates to revive the retail credit in a big way, according to Angel Broking
A recent research on banking industry done by the broking house also found that there going to be a decline of 4 percentage points in the corporate as well as government savings and a possible revival in the domestic demand due to expected fall in the broader interest rates.
Unlike developed economies, the Indian economy was growing at 7%-8% in September last year in spite of a tight monetary policy, with the CRR and Repo rate at 9%. Consequently, to stimulate the domestic demand further RBI acted swiftly, cutting down both rates to 5%. Evidently, there is still headroom to ease the rates and it is expected that RBI will maintain a downward trend in interest rates using monetary policy to aggressively counter the slowdown in GDP growth, the research said.
Given the huge stockpile of G-Sec investment (Rs 1.7 lakh crore) built by the banking industry, it is expected that instead of raising term deposits at 8%, the banks could alternatively cut deposit rates and loose limited share of savings to government savings schemes. Such deposit rate cut would help lower retail lending rates apart from helping the banks to post good earnings as well as revival of domestic demand, the research said. According to Angel Broking, the slowing demand, decreasing capacity utilisation and falling RoEs are expected to bring down corporate savings.