Bankers says cheaper money still some time away

Mumbai: Ruling out any immediate transmission of rates despite RBI chief Raghuram Rajan blaming them of passing benefits "only modestly", bankers on Tuesday said interest rates will fall once credit growth picks up.

"We believe transmission of rates will happen gradually over the next few months as credit growth picks up pace," SBI chairperson Arundhati Bhattacharya, said describing the status-quo monetary policy as per market expectations.

She hailed Governor Rajan for frontloading liquidity provisions through an OMO as "a well thought-out move as capital flows have been relatively slow this year given the global uncertainties, resulting in lower net foreign exchange acquisition".

During the customary post-policy press meet, Rajan blamed the bankers for holding onto higher rates even after the RBI lowering the same by 150 bps.

Complaining that banks have passed benefits only in a "modest" measure to borrowers, Rajan said a pick-up in credit demand, which would follow the economic recovery and competition for corporate loans after the ongoing balance sheet clean-up by the state-run lenders, will ensure softer lending rates.

"Earlier, some bankers said it was lack of liquidity which that was holding the rates high. Now, I hear from some that it is the fear of FCNR redemptions that is making them reluctant to cut rates. I've a suspicion that some new concern will crop up once FCNR redemptions are behind us," Rajan said.

"We would be happier if there was more transmission," he said, adding the RBI is sensitive to "some of the difficulties".

He also said the central bank will soon revise the marginal cost of funds-based lending rate framework to help fasten up process of policy transmission.

Chanda Kochhar of ICICI Bank welcomed both the continued accommodative policy stance as well the measures to ensure adequate liquidity.

Bank of India's Melwyn Rego said the assurance of continuing accommodative stance and liquidity are welcome moves. That the move was welcomed by the market is clear from the fact that the fixed income market reacted immediately with the 10-year yields falling by about 5 bps, giving banks an opportunity to book profits on fixed income portfolios.

Rana Kapoor of Yes Bank expects a rate cut in the coming months saying that notwithstanding the current pause on rates, the disinflationary impact will be upheld by favourable monsoons and structural policy reforms by government which will lead to a 50-100 bps space for incremental monetary easing during the current fiscal year itself.

Kotak Mahindra Bank's Shanti Ekambaram too echoed similar views, saying while risks of inflation remain, a host of positive factors like easy global liquidity and ample domestic liquidity indicate downward trajectory of interest rates in second half of the current fiscal year.