Bankers want 0.5% CRR cut in May; more OMOs to ease liquidity
Mumbai: Bankers Thursday sought from RBI 0.5 percent cut in their cash reserve requirement to tide over tight liquidity situation, and to help stem slide in investments.
They also sought a review of the elevated provisioning requirements, bankers told reporters after the customary pre-policy meeting with the Reserve Bank top brass.
Although there did not appear to be a clear consensus on what bankers wanted from the Reserve Bank in its monetary policy announcement on May 3, the larger view was that it should effect a 50 bps cut in the Cash Reserve Ratio to ease liquidity crunch.
CRR - portion of deposits that banks keep with RBI - is 4 percent, after the 25 bps cut in the January policy, while the short-term lending (repo) rate is at 7.5 percent.
Some banks demanded a cut in the short-term lending rate to boost credit pick-up, but the larger view was that a CRR cut would make monetary transmission faster as a mere repo cut would not help them slash their lending rates due to high cost of deposits.
All leading banks recently increased their term rates to attract deposits, the growth of which have been way below the RBI target of 15-16 percent.
The heads of large banks like SBI, ICCI and HDFC Bank did not meet the media. The chief of apex bankers body IBA was also not available for comments.
"We think that there should be a CRR cut now, as the main issue is of liquidity. We expect the RBI to slash CRR by 50 bps," Chairman and Managing Directors of Bank of Baroda S S Mundra told reports.
Bank of India CMD Vijayalaxmi Iyer held the same view.
Banks have been borrowing over Rs 1.2 lakh crore on an average from the RBI's overnight window everyday. In this regard they also urged RBI to conduct more open market operations to ease liquidity crunch.
These bankers said they have also sought a review of the new provisioning norms for the restructured assets, as at 5 percent it will impact their already tight profitability.
From April 1, banks have to set aside 5 percent of their recast loans, which was 2.75 percent last October and 2 percent prior to that.
As per a recent Crisil estimate, banks' provisioning requirement will jump by Rs 15,000 crore between April 2013 and March 2015, bringing down their profits by around 7 percent during this period.
Besides, as many as 362 fresh CDR (Corporate Debt Restructuring) cases worth over Rs 70,000 crore had been cleared in 2012, taking the total CDR book to Rs 2,11,978 crore as of December 2012, as against Rs 1,42,525 crore in December 2011.
The rise in CDR applications was mainly attributed to the troubles in the iron & steel sector, which restructured over Rs 47,100 crore of loans, constituting a whopping 23.11 percent of the total CDR cases during the period.
The next in line are the infrastructure companies with nearly Rs 19,800 crore worth of debt recast cases, according to the CDR cell data.
The large slippages and restructuring have impacted the solvency of banks with net NPAs in relation to networth jumping from 13.5 percent to 23 percent during the March 2011-September 2012 period.
The bankers said the RBI expressed concerns over the poor deposit growth and credit pick-up as well the resultant low investment.