India: Cut Rate to Spur Loan Growth - Bankers to RBI
India, September, 17 2014 -
Amid the banking system’s credit growth slowing to December 2009 levels, lenders have asked the Reserve Bank of India (RBI) to cut the repo rate, or the rate at which they borrow from the central bank.
On Tuesday, the RBI governor and deputy governors held a meeting in this regard with representatives from bank treasury departments, fund houses, primary dealers and microfinance institutions.
According to latest data, growth in loans for the year ended August 22 fell below 11 per cent from 16.8 per cent for the year-ago period; deposit growth stood at 13.6 per cent.
The repo rate, eight per cent as of now, has been unchanged since the central bank’s first bi-monthly monetary policy review in April. On Monday, RBI Governor Raghuram Rajan had said inflation was still high and, therefore, interest rates couldn’t be cut, as inflation would rise further. The central bank’s next monetary policy review is scheduled for September 30.
According to sources RBI also took feedback from various market participants on payment banks and small banks. RBI is likely to issue final guidelines on small and payments banks soon, paving the way for corporates to enter these two segments.Yesterday RBI deputy governor R Gandhi said that RBI has received comments on small and payment banks draft guidelines that it had introduced in July. "the public comments have received and we are factoring that in and soon we will come out the final guidelines on these two," Gandhi said.
Besides that banks have also urged the regulator that the database across credit bureaus should be shared among all the credit bureaus as this shall facilitate better decision making for banks towards credit approvals. In recent times banks have been reeling under the impact of bad loans. Microfinance institutions have also put forward this point to RBI that under Priority Sector Lending (PSL) whether banks are directly granting loans to the PSL categories or indirectly through microfinance institutions, both should be considered as a part of PSL.
Market participants have also demanded RBI that Liquidity Adjustment Facility (LAF) should be conducted even on Saturdays. Currently these are held from Monday to Friday. Besides that banks have also demanded for relaxation in the daily Cash Reserve Ratio (CRR) requirement. Currently banks have to adhere to a cash reserve ratio (CRR) requirement of 95 per cent daily and 100 per cent on a fortnightly basis. According to bankers these moves shall help in better liquidity management for banks.