Home >Industry >Banking >RBI’s decision to maintain status quo ‘most appropriate’: SBI Chairman

NEW DELHI : The decision by the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) to keep policy rates unchanged is the “most appropriate" as such policy actions work with a lag, State Bank of India Chairman Rajnish Kumar said, terming the central bank’s move an “unanticipated policy surprise".

In an unexpected move, the MPC on Thursday kept interest rates unchanged, as it decided to take a pause given the “evolving growth-inflation dynamics", after five consecutive rate cuts in 2019.

The repo rate—the rate at which banks borrow from the RBI—remains unchanged at 5.15%. This is contrary to the result of a Mint survey, wherein eight of 10 bankers and economists expected a 25 basis points cut. The six members of the MPC unanimously voted to hold rates in the December policy.

Kumar’s remarks on policy decisions working with a lag echo comments made by RBI Governor Shaktikanta Das earlier today. Das said past policy actions need time to play out and yield results.

The MPC also sharply reduced its growth forecast for 2019-20 to 5% from 6.1%, with the committee noting that a delay in revival of domestic demand, further slowdown in global economic activity and geo-political tensions could pose downside risks to growth.

India’s economy grew at 4.5% in July-September, the weakest pace in more than 6 years.

“The lowering of the GDP growth for FY20 and FY21 reflects continued growth conundrums and a slow recovery," Kumar said.

Key decisions on interest rates apart, the Reserve Bank said it would amend guidelines for primary (urban) co-operative banks with a view to minimise concentration risk in their exposures and to strengthen the role of such lenders in promoting financial inclusion.

A draft circular proposing the changes for eliciting stakeholder comments will be issued shortly.

“On the development and regulatory front, the steps announced for the primary (urban) co-operative banks will facilitate increased public confidence in these institutions," Kumar said.

RBI’s move for primary (urban) co-operative banks comes in the wake of the recent scam at Punjab and Maharashtra Co-operative Bank Ltd (PMC), where two-third of the bank’s total loan book has an exposure to Housing Development and Infrastructure Ltd (HDIL).

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our App Now!!

Edit Profile
My ReadsRedeem a Gift CardLogout