Bankers welcome Raghuram Rajan-led RBI's repo rate hike

Sep 20 2013, 22:04 IST
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It is a It is a "well balanced policy with focus on structural imperatives as well as near-term concerns... this should be viewed as positive for the long-term economic environment as well near-term stability in financial markets,", said Chanda Kochhar, the head of ICICI Bank
SummaryDeposit rate will go up, lending too, says SBI; positive for market, says Chanda Kochhar.

Bankers today welcomed the Reserve Bank of India (RBI) Governor Raghuram Rajan's mid-quarter monetary policy announcements and termed them as "a balanced and a pragmatic move" which will reduce banks' borrowing costs.

Country's largest lender State Bank of India, however, struck a different note, saying "lending rates can go up".

"Now the busy season has started so there is a huge credit demand and banks are scrambling for deposits. Deposit rate, I think, will go up and accordingly lending rates can also go up," SBI Chairman Pratip Chaudhuri said.

SBI had yesterday hiked its base rate by 0.10 per cent due to an uptick in the cost of funds.

It is a "well balanced policy with focus on structural imperatives as well as near-term concerns... this should be viewed as positive for the long-term economic environment as well near-term stability in financial markets,", said Chanda Kochhar, the head of ICICI Bank, in a statement.

Federal Bank Managing Director and Chief Executive Shyam Srinivasan said his bank's borrowing costs will come down because of the 0.75 per cent cut in the MSF, but hike in the repo rate will offset it.

Standard Chartered Bank's Country Chief Executive Sunil Kaushal welcomed the focus on inflation, saying "given the context of a volatile exchange rate and elevated inflation levels, the Governor has decided to take the difficult, but perhaps necessary, decision to rein in inflation".

During the interaction with reporters after the policy, Rajan said the measures introduced today are aimed at reducing the cost of funds for the banks and added that he expects banks to pass on the decrease without pondering about what will happen in the future.

"Despite the market's extreme initial disappointment...we are actually quite pleased with it," HDFC Bank said, adding it does not see the move as anti-growth.

The RBI began the process of withdrawing liquidity tightening measures introduced mid-July with a 0.75 per cent reduction in the marginal standing facility and a 4 percentage point climbdown on the CRR maintenance front.

The central bank also hiked the repo rate by 0.25 per cent because of rising inflation concerns.

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