RBI policy: Corporate India hails rate cut, now all eyes on banks

Corporate India cheered the first monetary policy review under new RBI governor Urjit Patel. The interest rate was cut by 25 bps to a six year low of 6.25 percent.

India Inc hopes that this rate cut would boost sentiment and reinvigorate growth impulses. More importantly, they hoped that banks would transmit the benefit to borrowers.

RBI governor Urjit Patel. Reuters

RBI governor Urjit Patel. Reuters

Arundhati Bhattacharya, Chairman, SBI said, that the repo rate cut was on `expected lines. "With benign inflation trajectory going forward, RBI’s policy stance is expected to remain accommodative. Banks will continue to transmit rates based on evolving liquidity scenario.”

Harsh Goenka, Chairman, RPG Enterprises, termed the rate cut as a `dovish' stand on monetary policy. He said, "This is a reflection of strong economic growth parameters that should support credit revival and give further boost to economy. This festive season augers well for consumption both for India's rural and urban markets due to good monsoons, 7th Pay Commission bonanza." He hoped that the banks would pass some part of the rate cut to the consumers.

"The cost of capital has to be more competitive to drive investments. Businesses need to see an urgent revival in
growth. Also, a moderate interest rate regime will lead to an uptick in interest sensitive sectors such as consumer
durables, automobiles and housing," Ficci President Harshvardhan Neotia said.

"The maiden policy decision taken by RBI's MPC is completely justified by the ongoing disinflation in the
economy. Today's rate cut will boost sentiment and contribute towards reinvigorating growth impulses in the infrastructure, construction and manufacturing sectors. Backed by a healthy set of domestic macros and sustained global deflation, I expect 75 bps further easing in the coming months," said Rana Kapoor, MD & CEO, Yes Bank.

The interest rate cut should change the rate scenario for FY’17 says George Alexander Muthoot, Managing Director, Muthoot Finance Ltd who feels it will help suppor the economy’s investment demand and uptick in credit environment. “A relief on the cost of funds is awaited eagerly by corporate India, which should help them to improve financial health and plan for the next leg of growth. With the pro-growth stance of the RBI, it gives a clear hint to India Inc to push for growth, take investment decisions as it can now foresee rates to soften further.”

For V S Parthasarathy, CFO, Mahindra Group, the cut of 25 bps serves as a signal from the RBI, anchoring future expectations.”This policy was a window into the thoughts of the Governor and the MPC. It is not only about the here and now, it is also about what the MPC thinks about risks and importantly it reveals the Governor’s thoughts on structural matters. The focus will be on NPAs, financial market reforms, and financial inclusion for MSME. The policy has however stuck to monetary aspects and we have to wait to see the Governor’s actions elsewhere. We trust he would continue to be vigilant, watching over the economic landscape with flexibility to act as the situation changes.”

Rajat Gandhi, Founder and CEO, Faircent on Monetary Policy says that the rate cut will benefit micro-SMEs. “Since large number of our borrowers are micro-SMEs or self-employed, the increased liquidity would definitely revitalise this key segment and boost the economy. As a leading alternative lending platform we have been witnessing higher lender interest over the last quarter, which is a pointer to increased supply… Improvement in the liquidity conditions would further help in boosting the credit scenario of the economy”.

N D Venkatesh, Executive Director, Lakshmi Vilas Bank has termed the policy ‘ “The first policy of the MPC committee under the new governor Dr. Urijit Patel has continued with the accommodative stance to foster growth in the economy. The inflation expectations have been well anchored. The smoothening of S4A guidelines will help the easier resolution of stressed assets and will be a relief to the banking system. Overall it is a pragmatic policy with focus on growth. “

Melwyn Rego MD and CEO, Bank of India said that this rate cut was expected. “This move was anticipated due to favorable domestic and global factors, viz, declining CPI inflation and an accommodative monetary stance by major Central Banks across the globe. Another notable aspect about the policy was total unanimity among all MPC members for a repo rate cut. More importantly, this was the first RBI policy announcement by an MPC. The rate cut could not have come at a more opportune time considering that US Federal Reserve stance has turned hawkish. Meanwhile, growth outlook has been retained at 7.6%. Overall, the stance of the policy is accommodative and pro-growth, while simultaneously acknowledging some upside risks to inflation.”

With Marginal Cost of funds based Lending Rates (MCLR) already stabilized, Ashwani Kumar, Chairman & Managing Director - Dena Bank hoped the pass through of the rate would be swift. “It is pertinent to note that the growth estimate of RBI for the year 2016-17 is constantly kept at the same level, thereby indicating that the risk factors to domestic growth is not substantial, probably due to the fact that growth is propelled by domestic factors than external factors. Since inflation is following the expected trajectory, the focus of RBI has now shifted to growth. One of the positives for the banking sector from the regulatory angle is the relaxation given on the treatment of sustainable debt under S4A.”

That all the six member of the Monetary Policy Committee supported the rate cut was the high point for Ms. Bekxy Kuriakose, Head – Fixed Income, Principal Pnb Asset Management. “The statement spoke about the slowing momentum of food inflation and reduction of small savings rate and felt that the upside risk to inflation was somewhat lower than last policy statement. In the post policy con-call RBI spoke about real interest rate around 1.25%, compared to 1.5%-2,0% earlier. We expect another 25 basis rate cut by March 2017.”

N D Venkatesh, Executive Director, Lakshmi Vilas Bank says that the rate cut has `well anchored’ inflation expectations. “The first policy of the MPC committee under the new governor Dr. Urijit Patel has continued with the accommodative stance to foster growth in the economy... The smoothening of S4A guidelines will help the easier resolution of stressed assets and will be a relief to the banking system. Overall it is a pragmatic policy with focus on growth. “

"At the anvil of the busy credit season when the demand for bank credit is anticipated to go up, the RBI intervention to reduce interest rates and other welcome liquidity supporting measures would enable banks to transmit the cut to borrowers and thereby support the growth cycle," CII Director General Chandrajit Banerjee said.

In a Facebook post, Union Minister for Power, Coal, New & Renewable Energy and Mines Piyush Goyal said the repo rate cut will ensure rapid growth and give a boost to Make in India, rapid infrastructure creation and affordable power.

"The industry expects a lot of value addition from the MPC and possibly another rate cut before March 2017, while
expecting the real transmission of the lower rates by the banks," Assocham Secretary General D S Rawat said.

"The rate cut should spur growth and the corporate sector should see it as an encouraging move to foster investment. However, the speed of transmission of this rate cut would be an important determinant," President of the Indian Merchants Chamber Deepak Premnarayen said.

Sterlite Power CEO Pratik Agarwal said: "It's clear that India is determined to maintain a 1.5-2 per cent real rate of interest. This will satisfy the urgent need for growth and also encourage savings at the same time."

The rate cut announced today shows that the central bank remains cautious in its monetary policies and is carefully monitoring the overall economic scenario before taking steps, said Anuj Puri, Chairman & Country Head, JLL India. He said, "the reason why housing sales have been sluggish is because of trust deficit between consumers and developers. Unless RERA and other pro-consumer policies come into play, buyers will continue to be wary. Therefore, we can expect only a marginal improvement in sentiment on the back of this rate cut. At this point, there is also no ready answer to the question of to what extent banks will actually pass on the benefit of the rate cut to borrowers."

(With inputs from agencies)

Updated Date: Oct 05, 2016 11:57 AM

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