Banks, on Friday, favoured reduction in the Cash Reserve Ratio (CRR) rather than the repo rate cut in the forthcoming monetary policy review as it would reduce their cost of funds and make monetary transmission faster.

“They (RBI) took a vote and most of us (bankers) voted for a CRR cut. In terms of the impact, there is no doubt the CRR (which is the portion of deposits banks park with RBI) has a great impact.

“We also mentioned that last time the CRR was cut, most banks had given effect to monetary policy transmission,” State Bank of India Chairman Pratip Chaudhuri told reporters after the customary pre-policy consultations with the RBI Governor here on Friday.

The Governor will unveil the mid-year monetary policy on October 30, where it is widely expected that he will bring down the interest rates following the raft of reform measures by the government over the past fortnight.

Mr. Chaudhuri said any reduction in the repo rate would have a bearing only on the sentiment.

“I have asked for 1.5 percentage point cut in the CRR and if any repo cut happens, that will be 50 basis points and that will be for the sentiment,” Mr. Chaudhuri said.

Indian Bank Association Chairman K. R. Kamath said the bankers preferred a CRR cut over any other instruments.

“The position is that a CRR cut reduces the cost directly, so that is preferable,” Mr. Kamath, who also heads Punjab National Bank, said.

“The RBI did ask that if the rate of interest is brought down, will there be a transmission. We said we will try for that,” Mr. Kamath said.

Slow growth in credit

Bankers also said the central bank was concerned over the slow growth in credit.

“Credit growth is not happening and apart from retail there is no growth,” Mr. Chaudhuri said, adding that the central bank was concerned over slow growth. In the second quarter, credit growth remained flat at 0.1 per cent.

ICICI Bank’s Chanda Kochhar also said credit growth had settled at around 16 per cent, which was a concern.

According to bankers, the RBI is also worried about the asset quality of the banking system.

“The RBI is concerned about the asset quality. Because, all the banks mention that the asset quality scenario continues to be difficult and the companies are facing difficulty even in maintaining smaller liabilities,” the SBI Chairman said.

He also said the banks did not have much concern on the deposit front due to subdued credit growth.


Predicament of a silent classOctober 28, 2012

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