RSS Feed
Twitter
8:31 AM
Blogger
Punjab National Bank ( PNB) chairman KR Kamath led chief executives' call for a reduction in cash reserve requirement if the central bank is serious about lowering borrowing costs in the system, but voices seeking interest rate cut were feeble.
Demand for a cut in the repo rate, the rate at which the central bank lends to banks, which has been a constant for nearly two years, is fast vanishing from the thoughts of the industry as the currency slide makes it meaningless. There are fears that a sustained fall in the value of the currency could force the central bank to reverse its stance and raise borrowing costs.
"We asked RBI to give relief on CRR and repo rate, and also asked RBI to pay interest on CRR," Kamath told reporters after the customary pre-monetary policy meeting with central bank officials. "We also asked RBI to relax provisioning norms on restructured assets." Quarterly monetary policy is scheduled to be released on July 30.
The near 12% slide of the Indian rupee since May is threatening to fan inflation in the form of higher diesel and coal prices. Inflation as measured by the WPI which fell below 5% may begin to climb again throwing a spanner in the works. Industry, government and investors have been lobbying for interest rate cuts to reverse the slump in economic growth.
The repo rate is at 7.25% and the CRR, the proportion of deposits to be kept at the RBI, is at 4%. "If the rupee remains at its current levels (rupee averages .`58 per US$), average WPI inflation for 2013-14 would be closer to 6% rather than our baseline forecast of 5.3%," forecasts Crisil, a rating company.
With little clarity on the way the Federal Reserve may go, governor Duvvuri Subbarao could opt to pause on July 30. "While slowing growth does call for a rate cut, a sharp rupee depreciation of 12% against the dollar since April 13 and rising capital outflows of $8.8 billion since May 22, would likely restrict rate cuts in the near term, especially till the Fed's Sep 17 meeting," Religare Capital said in a note.
Abank chief who did not want to be quoted said that bankers conveyed to RBI that a cut in CRR will send a positive signal to corporates that interest rates are moving southward and it will also enable them to lower lending rates.
Last week, a few banks like Bank of India, Union Bank of India and Canara Bank cut lending rates due to pressure from finance ministry. During the meeting with RBI, banks indicated that a cut in CRR will result in a further reduction in lending rate.
In the past, SBI chief Pratip Chaudhuri has categorically said that the bank will be in a position to lower rate only if RBI cuts CRR. SBI has pegged its base rate — the floor rate at which it lends — stands at 9.70%.
During the meeting, bankers also told RBI that considers a reduction in provisioning norms for restructured loans. As per the revised guidelines banks have to make a provision of 5% for new restructured loans and 3.50% on all the old restructured loans from March 2014.
Bankers told senior RBI officials that these provisioning requirements are very steep given that the economy is facing a slowdown. Restructured loans constitute 5-6% of banks' loan book.
Source: EconomicTimes
Demand for a cut in the repo rate, the rate at which the central bank lends to banks, which has been a constant for nearly two years, is fast vanishing from the thoughts of the industry as the currency slide makes it meaningless. There are fears that a sustained fall in the value of the currency could force the central bank to reverse its stance and raise borrowing costs.
"We asked RBI to give relief on CRR and repo rate, and also asked RBI to pay interest on CRR," Kamath told reporters after the customary pre-monetary policy meeting with central bank officials. "We also asked RBI to relax provisioning norms on restructured assets." Quarterly monetary policy is scheduled to be released on July 30.
The near 12% slide of the Indian rupee since May is threatening to fan inflation in the form of higher diesel and coal prices. Inflation as measured by the WPI which fell below 5% may begin to climb again throwing a spanner in the works. Industry, government and investors have been lobbying for interest rate cuts to reverse the slump in economic growth.
The repo rate is at 7.25% and the CRR, the proportion of deposits to be kept at the RBI, is at 4%. "If the rupee remains at its current levels (rupee averages .`58 per US$), average WPI inflation for 2013-14 would be closer to 6% rather than our baseline forecast of 5.3%," forecasts Crisil, a rating company.
With little clarity on the way the Federal Reserve may go, governor Duvvuri Subbarao could opt to pause on July 30. "While slowing growth does call for a rate cut, a sharp rupee depreciation of 12% against the dollar since April 13 and rising capital outflows of $8.8 billion since May 22, would likely restrict rate cuts in the near term, especially till the Fed's Sep 17 meeting," Religare Capital said in a note.
Abank chief who did not want to be quoted said that bankers conveyed to RBI that a cut in CRR will send a positive signal to corporates that interest rates are moving southward and it will also enable them to lower lending rates.
Last week, a few banks like Bank of India, Union Bank of India and Canara Bank cut lending rates due to pressure from finance ministry. During the meeting with RBI, banks indicated that a cut in CRR will result in a further reduction in lending rate.
In the past, SBI chief Pratip Chaudhuri has categorically said that the bank will be in a position to lower rate only if RBI cuts CRR. SBI has pegged its base rate — the floor rate at which it lends — stands at 9.70%.
During the meeting, bankers also told RBI that considers a reduction in provisioning norms for restructured loans. As per the revised guidelines banks have to make a provision of 5% for new restructured loans and 3.50% on all the old restructured loans from March 2014.
Bankers told senior RBI officials that these provisioning requirements are very steep given that the economy is facing a slowdown. Restructured loans constitute 5-6% of banks' loan book.
Source: EconomicTimes
0 comments:
Post a Comment