‘RBI has taken a balanced policy action by keeping the CRR and the repo rate unchanged’

The Reserve Bank of India has done a balancing act amid weak economic conditions by increasing liquidity that can help bankers cut lending rates, and, at the same time, let it continue with its nearly three-year-old fight against inflation, top lenders said here on Tuesday.

They hinted at a marginal reduction in lending rates following cut in the Statutory Liquidity Ratio (SLR) — the amount of deposits that have to be invested in government bonds and other liquid assets.

The RBI reduced the SLR by one percentage point at the quarterly monetary policy review on Tuesday.

State Bank of India hinted at lowering lending rates to retail customers.

“The one percentage point reduction in the SLR will release an additional Rs.10,000 crore for SBI. This coupled with Rs.6,500 crore released through the reduction in export refinance, may lead the bank to cut lending rates in retail,” Chairman Pratip Chaudhuri told reporters at the customary post-policy press briefing at the RBI headquarters.

It was always better to deploy money at 10.50 per cent return than the average of 7.5 per cent which the SLR gave, Mr. Chaudhuri said.

He further said the bank’s asset liability committee (Alco) would meet either on Tuesday or on Wednesday to take a call on both the Base Rate as well as whether to cut spreads in select retail products. Reacting to the policy review, Bank of India head and IBA Chairman Alok Misra said,

“Considering the economic outlook, the RBI has taken a balanced policy action by keeping the CRR and the repo rate unchanged. We should acknowledge that Europe is in recession, growth is slipping in the US, global trade is weak, inflation expectation is high, the rupee is weak and the monsoons are sporadic. So, by reducing the SLR, RBI wants to ensure that growth is not hampered.”

Chanda Kochhar of ICICI Bank, however, was non-committal on passing on the benefit to customers following the SLR reduction.

Though she admitted that the SLR reduction would make more liquidity available for lending to the productive sectors, she did not answer a query from reporters whether her bank would reduce the lending rates for retail borrowers.

On deposit rate cuts, Mr. Chaudhuri said, “it is difficult to reduce rates on short-term deposits immediately. However, there could be some space to cut rates on long-term deposits.”