Private sector lender Dhanlaxmi Bank has said that the Reserve Bank may go for a rate cut in the quarterly monetary policy review later this month if the headline inflation comes down.
“RBI may go for a rate cut but a lot will depend on the WPI inflation numbers that will come on January 16 ... It would not go for a rate hike again as the time for it has passed but it may not cut rates if prices of the non-food articles continue to rise,” Dhanlaxmi Bank Head-Policy and Research, Mr Rajrishi Singhal, told PTI over phone from Mumbai.
The apex bank has increased key policy rates 13 times since March 2010 but it went for a pause in the monetary stance at its policy review last month.
He added that if RBI cuts key policy rates on January 24, it would help banks in the mid-to-long term.
Pressure on margins
Speaking further on the banking sector, he said there will be pressure on margins of all banks till March.
Rate of interest has gone up on both domestic and NRE deposits. He added due to slowdown in the industry, loan offtake has come down and banks are witnessing a shrinkage in income fee, as it is tied to funded business.
The total non-performing assets of 37 out of the 40 listed banks in the country crossed Rs 1 lakh crore in the October quarter, according to the BSE data.
“There will be capital issues. Banks would need to raise fresh capital as there is a bump in loan recovery, especially in the loans given to the power, agriculture and infrastructure sectors,” Mr Singhal said.
Fiscal deficit
Replying to a query on the state of the economy of the country, he said: “Fiscal deficit is going to be quite a disaster at around 5.5 per cent ... There will be widening of the current account deficit.’’
On rupee, which was the worst performing currency in the Asian region last year, he said the currency will remain around the same level, as there are no FII inflows. As RBI has said that it will only intervene if the situation turns extremely volatile, rupee will continue to remain under pressure.
A slew of global factors have been the major deterrents to the growth of the economy, he said, adding that markets will depend a lot on what happens in Europe, as a lot of banks there have taken deep rate cuts.