RBI likely to leave key rates untouched, say bankers  

Surplus liquidity in the banking system and low demand for credit might prompt the Reserve Bank of India (RBI) to maintain a status-quo in its key rates, according to bankers.

 

In the quarterly review of its annual monetary policy expected to be released on 29th July, the central bank is likely to outline a clear roadmap to conduct the government borrowing programme in a smoothly and may hike the gross domestic product (GDP) and inflation forecast for fiscal year 2010, they said.

 

"There is enough liquidity in the banking system, even though, they may keep headroom to lower the CRR (cash reserve ratio). Any cut is unlikely in the current policy. It may leave the repo and reverse repo rates unchanged," UCO Bank chairman and managing director SK Goel told PTI.

 

Given the turbulence in the market, the apex bank might relax the non-performing assets (NPA) norms for stress-ridden sectors and extend the deadline for loan restructuring, Goel said.

 

The possibility of hiking the SLR (statutory liquidity ratio) requirement of banks to 25% from the current 24% cannot be ruled out, he added.

 

To arrest the slowdown in the economy by stimulating demand, the apex bank has trimmed its cash reserve ratio (CRR) to 5%, repo and reverse repo rates to 4.75% and 3.25%, respectively, since October last year.

 

"RBI may lower the credit and deposit targets for banks, as it is difficult to meet those in the prevailing conditions," Bank of Baroda chief economist Rupa Rege Nitsure said.

 

In its annual monetary policy, the central bank had set the credit target for banks at 20% and deposit base at 18%.

With the economy showing signs of revival, there are possibilities that the central bank might review its GDP and inflation targets for the fiscal to 6%-6.5% and 5%, respectively, as against 6% and 4.5% which was projected earlier, Nitsure said.

 

Any change in the RBI key rates is unlikely, in the view of excess liquidity in the system, Nitsure added.

The central bank is expected to come out with a clear picture on how to manage the massive government borrowing programme to mitigate the disruptions in the market.

 

A slew of measures are likely to increase the pressure on the banks on account of large defaults, Kotak Mahindra Bank's group head of retail liabilities KVS Manian said.

 

This may include extension of loan restructuring facility till December, Manian said.

Bankers have sought extension of loan restructuring facility till December against the earlier deadline of 30th June in a meeting with RBI governor, D Subbarao. They also urged the central bank to ease the NPA norms in certain sectors like infrastructure.

 

RBI deputy governor KC Chakrabarty had recently said the RBI's effort was to ensure a stable and benign interest rate regime, comfortable liquidity and adequate credit flow to the productive sectors.