Bankers today asked the RBI to reduce the key policy rates by 50 basis points (0.5%) and slash cash reserve ratio (CRR) by 25-50 basis points in the credit policy review scheduled for January 29.
"The bankers have urged the RBI to reduce interest rates by 50 bps at least. Even the CRR should come down by 25-50 bps," Indian Banks Association (IBA) Chief Executive K Ramakrishnan told reporters after the customary pre-policy consultation meeting held by RBI with the bankers here.
One basis point is equal to 0.01%.
He said if both these rates are lowered, it will send a positive signal to market. "If both these things happen, transmission will happen and it will be a good sign to the market that growth is going to happen in a big way."
The likelihood of a rate cut became strong with manufacturing growth remaining in the negative terrain and WPI -based headline hitting a three-year low at 7.18% in December.
Moreover, RBI Governor D Subbarao had in the October policy as well at the subsequent mid-quarter review had hinted at a rate cut in the January policy.
On the poor deposits growth, the IBA Chairman said the bankers raised concerns regarding sluggish deposit growth along with low credit uptake.
"Sluggish deposit growth is a matter of concern to the bankers. Credit is also not picking up the way it should pick up. It is around 8% now," he said.
According to Ramakrishnan, both bankers and the central bank are concerned about the rising bad assets in the financial system.
About the recent suggestion to pay interest on current account, Ramakrishnan said there was a passing mention regarding this with the apex bank at the meeting.
Citi India CEO Pramit Jhaveri said the bankers sought a reduction in the repo rate along with CRR, the portion of deposits banks have to park with RBI.