Mumbai: Banks Friday favoured reduction in 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 this afternoon.
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.
Chaudhri said any reduction in the repo rate will have a bearing only on the sentiment.
"I have asked for 1.5 percent cut in the CRR and if any repo cut happens, that will be 50 bps and that will be for the sentiment," Chaudhuri said.
Indian Bank Association Chairman K R Kamath said the bankers prefer a CRR cut over any other instruments.
"The position is that a CRR cut reduces the cost directly, so that is preferable," 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," Kamath said.
Bankers also said the central bank is concerned about the slow growth in credit.
"Credit growth is not happening and apart from retail there is no growth," Chaudhuri said, adding, the central bank is concerned with slow growth. In Q2, the credit growth remained flat at 0.1 percent.
ICICI Bank's Chanda Kochhar also said credit growth had settled at around 16 percent, which is 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 do not have much concern on the deposit front due to subdued credit growth.
"Most banks are not seeing it (deposit growth) as a challenge and they are taking it easy because loan growth visibility is very poor," Chaudhuri said, adding the asset quality should be much better for SBI in the second quarter.