Thursday, July 18, 2013

RBI should roll back steps after rupee stabilises: SBI

New Delhi, July 16: Bankers today said that the liquidity tightening measures announced by RBI are temporary and hoped that they will be rolled back once the rupee stabilises. “These measures are temporary, to calm down volatility. We are not taking that these measures will be long-term. I think once the rupee stabilises, these steps should be largely rolled back,” SBI Chairman Pratip Chaudhuri said.

The Reserve Bank of India had last night announced a slew of measures like raising the cost of borrowing by banks by 2 per cent to 10.25 per cent and announcing sale of bonds worth Rs 12,000 crore through open market operations to suck liquidity to check the rupee slide. The rupee had earlier this month touched a life-time low of 61.21 to a dollar. On the impact of RBI measures on interest rates, Chaudhuri said: “Impact on loan growth depends on how long these measures stay. Deposit rates do not have such a close correlation with the money market.’’ RBI’s measures strengthened the rupee to 59.20 against the dollar in noon trade against the previous close of 59.89.

“RBI action is towards the forex side of market and to contain volatility in rupee,” Bank of Baroda Chairman S.S. Mundra said, adding that it would be too early for RBI to change the policy stance. RBI is scheduled to announce its first quarter monetary policy review on July 30. UCO Bank Chairman Arun Kaul said RBI’s step is a temporary measure and the bank has to wait for some more time to decide on the impact of this move. “The objective of RBI action is to compress liquidity. The implications are same as repo rate hike. RBI has opted for that time which is slack in terms of credit demand,” Kaul said.

PSU banks decide not to hike rates

Jaipur/ New Delhi/ Mumbai, July 16: You need not worry about an increase in your equated monthly instalments after RBI’s late night action on Monday. The finance ministry has leaned on public sector banks that control around 70% of the business against raising rates to keep a large constituency of middle class and corporate borrowers pacified ahead of key elections. After all, for over a year now, the finance ministry has been prodding RBI to cut rates, while the central bank has refused to toe the government line. Instead, on Monday it signalled a reversal in policy to offset the impact of the weakening rupee by announcing several measures that will push up the cost of funds for banks.

While there were expectations of banks responding with hikes in the coming days, the finance ministry swung into action and impressed upon banks to maintain status quo.

By evening the impact was visible as banks started issuing statements, saying rates will not go up. “The measures taken by RBI are designed to curb speculation in the market and are not seen by SBI as indicative of any systemic problem or deeper malaise. It is, therefore, expected that the position in the market will stabilize shortly. Hence neither the management nor the board of SBI that met on Tuesday in Mumbai felt that this requires any adjustment of lending,” State Bank of India said in a statement. Taking a cue from the largest lender, others including Punjab National Bank, Bank of Baroda and IDBI Bank followed suit.

Earlier on Tuesday, finance minister P Chidambaram seemed to lay down the ground rule. While kicking off a pre-election campaign on government schemes, Chidambaram said he did not expect banks to raise interest rates. “These measures are intended to quell excessive speculation in the forex market, reduce volatility and stabilize rupee. They should not be read as a prelude to any policy rate changes,” he said. Admitting that the high current account deficit has made the rupee weaker, the finance minister said, “Given the current account deficit and the inflation, some depreciation of the rupee is expected. But sometimes there is excessive speculation in the foreign exchange market and the role of RBI is to ensure that volatility is cut.

The tight liquidity situation due to the recent measures raised concerns of growth being impacted. But the finance minister allayed such fears. “These measures will in no way affect our commitment to growth. We must increase credit delivery and stimulate growth.” He reeled off a number of reforms and initiatives taken by the government in the last four months to revive growth and reverse the policy paralysis that has stalled projects approvals.