Mr P. Jayarama Bhat, Managing Director and Chief Executive Officer of Karnataka Bank Ltd, has termed the RBI’s second quarter review of monetary policy for 2011-12 as a forward-looking policy.

Speaking to Business Line here on Tuesday, he said that the GDP projection what RBI has given is in line with the market. Inflation target, which RBI has set, looks slightly optimistic, but it will be a challenging one, he said.

On de-regulation of interest rates on SB (savings bank) deposits, Mr Bhat said that short-term interest rates are likely to go up slightly because of this.

“What RBI Governor has said that there may not be further hike in the coming months because of the expected inflation containing, the long-term interest rates may be steady or may look downwards,” he said.

On passing on 25 bps repo rate hike to the borrowers, he said because of the SB interest rates de-regulation the cost of funds are likely to go up. This may necessitate the bankers to increase the interest rate on borrowers on advances. However, it depends on the individual banks’ liquidity position.

On his bank’s stand on this, he said: “I have yet to see the entire policy. But as of now our liquidity is OK. To see the impact, I have to study the regulation what RBI has put in the SB interest rate de-regulation. It all depends on where the interest rate settles down. We have to study and then we have to work out.”

On the RBI’s decision to permit domestic scheduled commercial banks (other than RRBs) to open branches in tier 2 centres (with a population of 50,000 to 99,999 as per Census 2001) without the need to take permission from the Reserve Bank in each case, subject to reporting, Mr Bhat said it is a good move.

“It will help increase the branches in urban tier II centres. Hitherto permission was required to open branches in such centres,” he added.

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