A reduction in lending rate is unlikely despite the RBI’s liquidity easing measures announced on Monday, experts say.
According to Bank of America Merrill Lynch report, credit growth is likely to fall to about 11 per cent.
“Total loan growth has risen to about 17-18 per cent, but the total credit growth (adjusted for Commercial Paper + debentures) is at about 15 per cent, as corporates turned to banks for working capital, post the July 15 measures. But we expect total credit growth to fall to about 11 per cent, as banks are unlikely to cut lending rates,” the report said.
Also, capex and infrastructure loan growth may be below 5 per cent, owing to a slowing new pipeline, though the retail growth will be at above 15-16 per cent.
Government banks are likely to be more impacted and the asset-quality issues still persist. Private banks should manage the bad loans cycle better, owing to a higher retail loan share and higher provisions, it said.
Cut in MSF rate
On Monday, the RBI had announced measures to ease the liquidity conditions by cutting the marginal standing facility (MSF) rate by another 50 bps to 9.0 per cent. This is over and above the easing done by the RBI in its September 20 policy. This reduces the gap between Repo and MSF to 150 bps.
Besides lowering the MSF rate, the RBI will also inject liquidity in the form of 7/14-day term repos at an additional 0.25 per cent of banking system NDTL over and above the 0.5 per cent of NDTL for each bank provided, as of now.
“In effect, banks will be able to borrow at rates marginally lower than the MSF rate. This 0.25 per cent of NDTL will further allow banks collectively to borrow about Rs 18,000 crore through this newly introduced facility, the report said.
Wholesale-funded banks
While the overall liquidity deficit has eased to Rs 1.1-1.2 lakh crore compared to a peak of Rs 1.5-2 lakh crore around mid-September (partly owing to advance tax outgo), this measure is net positive for wholesale funded banks.
According to the report, “Incrementally, borrowings from the MSF window have eased to Rs 40,000 crore vs Rs 80,000 crore - 1 lakh crore in mid-September. Banks with lower CASA (current and savings account) levels, like IndusInd Bank, and more dependence on money markets should be positively impacted.”
Lower cost of funds for non-banks
“With the lowering of MSF rates, we believe the marginal cost of funding for the top-rated non-banks (like HDFC Ltd, Sriram Transport Finance, Mahindra and Mahindra Financial Services) may ease as the MSF rate (9 per cent) is now much below the banks’ base rate. This may also further help corporates to shift back to the CP/ debenture market from loans,’’ it said.