Bankers see 0.25% cut in repo rate on 18 June

Mumbai: Bankers on Friday said they expect the Reserve Bank of India to cut its key rates by 0.25% at the forthcoming mid-quarter review given the present need to boost growth.

“Growth has fallen and with inflation continuing to be flat, I expect the RBI to cut rates by 25 bps,” Central Bank of India chairman and managing director M. V. Tanksale told reporters on the sidelines of the Skoch summit here.

Andhra Bank also expects a similar reduction in the policy rate, chairman and managing director B. A. Prabhakar said.

On if the bank will pass on the benefit in the case the RBI cuts rates to borrowers, Tanksale said the bank will first wait for a reduction in deposit rates which can bring down the cost of funds, before taking a call on the issue.

Terming State Bank of India’s decision to lower interest rates on select deposits by up to 0.25% as a “good move”, he said his bank will take a call on it after 18 June, when the RBI will be reviewing its monetary policy.

Tanksale, however, conceded that deposit mobilization continues to be a challenge in the present times.

Prabhakar said his bank may tweak its deposit rates, especially those in the short-term baskets and the one-year maturity bucket, but did not give a timeline.

Reserve Bank deputy governor Subir Gokarn, who heads the monetary policy department, has already hinted at a reduction in the key repo rate, due to the falling growth and crude prices.

In its annual policy announcement on 17 April, the RBI surprised all by cutting the repo rate by 0.50%, as the signs of a slowdown became more pronounced. It had, however, said that its capacity to reduce the rates further was very limited given the elevated inflation scenario.

Official data released last week pointed out that growth for the fourth quarter ending March fell to a nine-year low of 5.3% and for the fiscal 2011-12 it stood at 6.5%, much lower than the 6.7% recorded during the credit crisis.

When asked about lending to the crisis-ridden microfinance sector, Tanksale said the comfort levels of banks have increased after the emergence of regulatory clarity on the sector and lenders are not as averse to the sector as they were a year ago.

Prabhakar, however, said it still needs to be seen if the law being mooted at the Centre level will supersede the Andhra Pradesh regulation, which has been the genesis of issues for the once sunrise sector.

Both Tanksale and Prabhakar said they have not received any official communication from the government on restructuring of some debt worth Rs35,000 crore out of the Rs1.7 trillion in textile sector.