Inflation dynamics dominated the RBI’s decision: bankers

The Reserve Bank of India’s decision to hold policy repo rate is in line with market expectations, say top bankers. They welcomed the central bank’s move to rationalise merchant discount rate charges and permit overseas subsidiaries and branches of banks to refinance external commercial borrowings of top-rated corporates and Navaratna public sector undertakings.

State Bank of India Chairman Rajnish Kumar, said: “The RBI decision to maintain status quo was in consonance with market expectations. The policy assessment is fairly balanced and pragmatic with inflation and growth both expected to show an uptick in the next two quarters. The decision in allowing subsidiaries of Indian banks abroad to refinance ‘AAA’ rated corporates will provide a fair and just opportunity to Indian banks to book and retain good quality assets.”

Chanda Kochhar, MD and CEO, ICICI Bank, said: “The RBI’s decision to keep the policy rate unchanged today is in line with expectations. It has displayed prudence in highlighting adverse risks to the inflation trajectory. It has also taken cognizance of further improvement in growth prospects on account of various structural reforms implemented by the government, including bank recapitalisation. It is heartening to note that the RBI has also communicated greater clarity on the liquidity framework indicating that it is ready to deploy both short-term and durable tools to absorb or inject liquidity as the need arises.”

Dinabandhu Mohapatra, MD & CEO, Bank of India, said: “Considering the upward trend in inflation, rising crude and a possible reversal of monetary accommodation by major central banks, the status quo in policy rates was widely anticipated. For the banking sector as a whole, credit growth is slightly higher than deposit growth, signalling an end to easy liquidity conditions. Taking a cue, some banks increased the rates on wholesale deposits. Both domestic and global growth is on a rising trend. However, higher growth overseas also carries the risks of upward movements in commodity prices, not really good news for a major oil importer like India.”

Jatinderbir Singh, Chairman, Indian Banks’ Association, said: “Clearly, the inflation dynamics dominated the RBI’s decision to maintain status quo. RBI’s retention of the GVA projection for the financial year at 6.7 per cent and maintenance of neutral stance coupled with the impending recapitalisation programme for public sector banks will further help in improving the overall credit growth.

“The positive primary capital market activity and improvement in ease of doing business augurs well for the Indian economy which could also improve credit growth of the banks. The announcement on the rationalisation of merchant discount rate would usher in greater transparency on the one hand and give a further fillip to digital transactions, which is already showing significant growth. On the whole, the policy prescriptions were positive with a long term view.”

RP Marathe, MD & CEO, Bank of Maharashtra, said: “Abiding by its neutral monetary policy, RBI has kept the repo rate unchanged at 6 per cent, as anticipated by most market analysts. With growth bouncing back to 6.3 per cent for September quarter from the June quarter figure of 5.7 per cent, RBI’s inflation targeting stance seems to have been validated as of now. Fears of inflation which prompted RBI to keep the rate unchanged at 6 per cent in October hold the same now as well; with the crude price level rising to its highest since July 2015 and both retail as well as wholesale inflation inching up to 3.58 per cent (seven-month high) and 3.59 per cent respectively for October 2017.”

Ashwani Kumar, Chairman & Managing Director, Dena Bank, said: The tone of the policy is noticeably cautious on prices and positive on growth. It is also to be noted that the future policy actions will largely depend on data facts. Augmenting the increase in digital payments, the introduction of differentiated merchant discount rate and a cap on the absolute amount of MDR for debit card transactions is expected to increase acceptance of debit card usage and will also bring down the cost of transactions for small merchants. Overall, the outlook of the MPC is supportive to the growth of the economy.”