OP Bhatt
Chairman, State Bank of India
By reinstating the SLR requirement to the pre-crisis levels of 25 per cent, even as the banking system is still sitting on surplus holdings of more than 27 per cent, the Reserve Bank if India governor has signalled that sooner or later the policy of monetary easing will have to be withdrawn. However, when that will be done will be a matter of judgement based on the needs of the economy.
It is by now fairly well established that the extraordinary measures to tackle the post-Lehman crisis have caused a huge increase in liquidity.
Liquidity in the system is perhaps at record levels of more than Rs 100,000 crore on a daily basis (as indicated in LAF subscriptions). Due to the early growth indications, portfolio inflows have been strong, impacting the reserve money creation and money supply growth.
Chanda Kochhar
MD & CEO, ICICI Bank
The Reserve Bank of India has adopted a balanced approach towards the complex challenge of accelerating economic growth while managing inflation.
The improvement in global economic environment and India’s structural advantages are positive factors driving the revival of growth. At the same time, there is a need to ensure that inflationary expectations are managed appropriately.
In this context, RBI has indicated that its exit from monetary stimulus conditions will take into account the pace and depth of economic recovery.
The continuation of key policy rates at existing levels is welcome and will continue to provide support to the economic recovery process. In line with its approach, RBI has withdrawn certain special measures it had adopted to support systemic liquidity following the extraordinary events of last year.
S Mahalingam
CFO, TCS
By keeping key rates unchanged, the central bank has indicated that economic growth continues to top its agenda and hence the benign interest rate regime will continue for the time being. A hike in the SLR means it is watchful of inflation, which is once again rearing its ugly head.
While a year ago the primary concern of RBI was to stimulate growth and hence it increased liquidity in the system, today the governor can take comfort from the fact that the measures have paid off and the Indian economy is among the fastest growing in the world and has emerged out of the global economic turmoil in a better shape than most other economies. However, inflation remains a cause for concern. For the Indian IT sector, while the demand situation has improved with the global markets displaying green shoots, rupee volatility continues to be a matter of concern.
Niranjan Hiranandani
MD, Hiranandani Constructions
Commercial real estate has been been facing a slowdown and lending to the sector has gone up significantly in the last one year. That is why the Reserve Bank of India (RBI) is trying to dampen lending to commercial property developers and reduce the supply.
While there is a steady supply of commercial real estate, the demand for commercial real estate assets has not gone up. The central bank is trying to reduce the gap.
This will lead to increase in cost of funding for developers and ultimately reduce the supply of commercial property.
Like the residential market, which has revived in the last six months, I believe by January 2010 the demand for commercial real estate will pick up as GDP is growing and RBI will take corrective action.
Venu Srinivasan
CMD, TVS Motor and President of CII
RBI's decision to leave key rates unchanged signals the delicate balance that the central bank has to maintain between maintaining growth through a series of stimulus packages that were announced in the past and ensuring that inflation does not get out of hand. The bank's estimate of inflation for the current year is pegged at 6.5 per cent. The hike of banks' SLR by 100 basis points serves as a gentle note of caution on the excess liquidity that is currently present in the system. I repeat, it’s a gentle note of caution since the credit offtake in the first half of this year has been less than desirable.
On the two key issues of interest rates rising in the future and the continuation of the fiscal stimuli package, I think that both would happen. Interest rates will rise as much of the government borrowings are scheduled in the coming months, which will raise the cost of borrowings.
Sanjay Nayar
CEO & Country Head, KKR
The RBI governor has clearly said that the accommodative policy is being exited. The SLR increase and some export refinance pull-back are the first steps towards that.
Inflation is definitely under upward pressure due to large fiscal and supply constraints. With this as the background, and price stability being a key goal, I would have thought we could have seen some more mopping up of liquidity or a small rate hike.
That the real economy is lagging (revised GDP projection is at 6 per cent) is evident from the trend in agri and services and it is not due to prevailing rates and lack of liquidity. With non-food bank credit growing at 18 per cent, the excess liquidity simply leads to asset reflation (bonds, equities and real estate). RBI could have conveniently moved both liquidity and rate levels, howsoever small, without hurting the real economy.
