 "Central bank pauses for transmission of rate cuts: Y M Deosthalee")
The Reserve Bank of India (RBI) cut interest rates twice in the last three months mainly due to sobering of inflationary expectations. However, the repo cuts have not resulted in actual reduction in lending rates by banks. This may be on account of the asymmetry between changes in deposit and lending rates.
Further, reducing base rates would lead to re-pricing of a substantial quantum of the bank book, thereby eroding margins. So, the regulator has paused, pending effective transmission of reduction in repo rates. Additionally, muted credit demand, high levels of stressed assets and non-performing assets weigh heavily, creating a heightened provisioning requirement. While the concept of calculating base rate based on marginal cost of funds looks desirable on paper, practical implementation appears difficult.
The measure to permit Indian corporates to raise external commercial borrowings through issuance of rupee bonds in overseas centres will help mitigate hedging needs. We welcome the proposal to expand the scope of operation of IDF NBFCs, which will enable reduced cost of financing for operational infrastructure projects, due to inter alia tax efficiencies. Lastly, RBI has clarified that its priority for a rate cut would be dependent on domestic factors rather than international ones.
Further, reducing base rates would lead to re-pricing of a substantial quantum of the bank book, thereby eroding margins. So, the regulator has paused, pending effective transmission of reduction in repo rates. Additionally, muted credit demand, high levels of stressed assets and non-performing assets weigh heavily, creating a heightened provisioning requirement. While the concept of calculating base rate based on marginal cost of funds looks desirable on paper, practical implementation appears difficult.
The measure to permit Indian corporates to raise external commercial borrowings through issuance of rupee bonds in overseas centres will help mitigate hedging needs. We welcome the proposal to expand the scope of operation of IDF NBFCs, which will enable reduced cost of financing for operational infrastructure projects, due to inter alia tax efficiencies. Lastly, RBI has clarified that its priority for a rate cut would be dependent on domestic factors rather than international ones.
Y M Deosthalee
Chairman and managing director
L&T Finance
Chairman and managing director
L&T Finance