Pratip Chaudhuri
Chairman, State Bank of India
The stance of the annual credit and monetary policy is calibrated. The economic growth is coming from services. The manufacturing, which is more credit-intensive, is not growing. That is perhaps the reason for lower projection in credit and deposit growth.
The effective demand is not very much in the corporate side, but there is consumer demand. Particularly, home and car demand continues to be strong. Till the time we have enough deployment there, I don't think there will be great compulsion to cut the rates.
There is nothing to transmit. Our total borrowing on the repo window is Rs 20,000 crore. On that, if I get a reduction of 25 basis points, it is Rs 50 crore. Total advances, which are linked to the base rate, is about Rs 6,00,000 crore. You try distributing Rs 50 crore among Rs 6,00,000 crore, you get 1 bps.
Deposit rates have to come off, which haven't.
Post offices rates have not come off. Going from this, SLR (statutory liquidity ratio) rates and bond rates are expected to go down. The causes leading to the effect that you are looking for, are just not there.
Chanda Kochhar
MD & CEO, ICICI Bank
The policy statement by RBI is in the backdrop of a sharp slow-down in growth and continued upside risks to inflation due to structural factors. The reduction in repo rates along with the commitment to maintain adequate liquidity is welcome. RBI has also recognised certain other challenges such as the current account deficit and moderate investment growth. While RBI has committed to maintain liquidity to ensure adequate credit flow to productive sectors, it is expected the other steps would be guided by developments relating to growth and inflation.
The developmental and regulatory steps announced by RBI will serve to strengthen financial markets, improve financial inclusion and enhance efficiency of direct benefit transfers. The measures relating to strengthening of KYC norms and tightening of third party distribution processes are in the best long term interests of banks and financial institutions and their customers.
Keki Mistry
Vice-Chairman & CEO, HDFC
The Reserve Bank of India's (RBI) measured response of reducing the repo rate by 25 basis points was on expected lines. However, RBI's outlook on the economy remains cautious, with a projected GDP growth rate of 5.7 per cent for FY14.
It has emphasised that growth would remain subdued and only pick up in the second half of the current financial year.
Concerns on the current account deficit (CAD) persist, although the recent decline in commodity prices - especially oil and gold - may provide some relief, provided these prices sustain.
In terms of regulatory measures, the proposal to carve out commercial real estate exposures for residential housing from other commercial real estate exposures should be a welcome measure if it entails lower risk weights and provisioning requirements. Given the acute shortage of housing, there is a need to encourage the construction of more affordable homes.
Rashesh Shah
Chairman & CEO, Edelweiss Financial Services
The Reserve Bank of India (RBI)'s move to cut the repo rate by 25 bps was expected and welcome, given that monetary policy is operating amid several constraints. Indeed, the cautious guidance of "little room for further monetary easing" is also quite understandable because persistently high consumer price index and large current account deficit are significant macro risks which cannot be ignored. At the same time, much of steep downturn in the economy over the last couple of years has been the result of lingering supply side constraints and administrative bottlenecks where monetary policy has a limited role to play. Clearly, it is a tight-rope walk for RBI.
As we progress into FY14, the policy will be critically hinged on several evolving parameters. First, among these is the government's effectiveness in de-clogging the investment cycle by expediting the approval process so that growth can be revived without boosting inflation.
The energy sector, particularly coal and natural gas, is important in this regard. Second, the progress on fiscal consolidation has been impressive so far, but it is critical that it continues in a pre-election year. Third, the recent fall in commodity prices is certainly favourable but it needs to be seen whether the trend sustains. If these variables pan out favourably, certainly more room for monetary response will open up.
Sunil Kaushal
Regional Chief Executive - India & South Asia, Standard Chartered Bank
As the economy is emerging from its macro challenges of high inflation and twin deficits, the Reserve Bank of India (RBI) has quite understandably kept a cautious approach while selectively enabling levers for keeping the growth rate alive by reducing the policy rate.
Inflation continues to be a priority and the aggressive target to contain inflation at 5 per cent will be a difficult but welcome achievement. This will also help build up the inflation fighting credibility of the central bank. In the near term, a further fall in inflation is likely to keep the window for rate cuts open.
The outlook on growth continues to be relatively more conservative than the government's as RBI waits for more supply side measures to be undertaken. Although the cash reserve ratio has been left unchanged, RBI has promised adequate liquidity infusion through other means, as was done in the past.
A combination of further government action to expedite project clearances, easing of payment cycles and better global outlook would help set the stage for RBI to be more comfortable in easing monetary policy.
Rajeev Talwar
Group Executive Director, DLF
There's a whole lot of negatives coming up. Where is the positive? The question is whether the sentiment is being improved or not. To that, the answer is, no. Apart from other things, economy also revolves around what the sentiment is like. And to boost the economy, investment climate must get better, something that is in the hands of the government, but RBI too has a role. In that backdrop, it is forecasting negatives, which is bound to hit the turnover and revenue of companies. At a time when pre-election expenditure has to be made, one will have to think of containing the deficit. We urgently require steps to spur growth. In the case of real estate, the policy will have a positive impact if every rate cut is passed on to customer. Some banks have started saying they have reached the threshold and cannot lower rates further. This is too frequent an exercise to comment upon every quarter, as the impact will be felt in the long-term only.
