Mumbai: The Reserve Bank of India had a busy Friday. Besides a hold on revision of crucial lending rates the RBI announced a detailed statement on new policy measures with an objective to deepen the efficiency of the country's financial markets.
Along with the Governor's statement and the MPC brief observations the RBI's commentary managed to give a boost to the markets. Indian equity indices -- Benchmark BSE Sensex and the Nifty50 were up by 1 percent in the intra-day trading on Friday.
Analysts and Chiefs at several organizations appreciated the RBI's announcements despite forecasts of it being a non-event. Here's a look at some of the opinions:
Anuj Puri, Chairman, Anarock Property Consultants: As was expected, the RBI has kept the repo rate unchanged. The threat of inflation looms large - it currently hovers above 7% - and the apex bank is tasked with reining it in while simultaneously fostering the green shoots of resuming consumption. On the positive side, an unchanged repo rate will ensure that home loan interest rates will not harden anytime soon. It is quite clear that increasing interest rates would impact overall demand at a time when the government is keen to boost consumption.
It goes without saying that the real estate industry's perennial hope is fixed on lower interest rates. This would be enabled by reducing the repo rate - a least in theory, given that transmission of reduced repo rates to bank interest rates has been slow at best. With real estate demand gradually returning, especially in the wake of developers’ discounts and freebies and reduced stamp duty charges (in Maharashtra), reduced repo rates would have given an added boost to the ongoing festive season.
Dhiraj Relli, MD & CEO, HDFC Securities: The outcome of the MPC meet on Dec 04 was largely on expected lines including the status quo on rates. The Committee's assurance to continue with the accommodative stance of monetary policy as long as necessary – for the current and next year - is welcome. The MPC feels that inflation is likely to remain elevated, with some relief in the winter months from prices of perishables and bumper kharif arrivals and has raised inflation projections for H2FY21 and H1FY22. The fact that as per the RBI, CPI may not fall materially even in H1FY22 is a bit worrying.
The Governor did not mention about asset quality issues or their trends. In the passing he mentioned that debt servicing capacities of corporates has risen in Q2FY21 meaning that the RBI does not perceive any deterioration in asset quality from the last policy review.
The real GDP growth projections have been upped. While the Q4 growth projection is below expectations, the H1FY22 projections bring in a sense of relief.
No measures have been announced to mop up the excess liquidity in the Banking system which has arisen because of high inflation and Forex sterilization. On the other hand, the RBI has assured provision of adequate liquidity to deserving segments. The real interest rate on the short end of the curve will remain severely in the negative for some time penalizing the savers. One hopes that this does not affect the savings rate materially.
All in all a welcome policy announcement with RBI maintaining the liquidity rope and hinting/hoping that asset quality stress seems under control. It seems that rates may remain on hold atleast till Mid March 2021.
Dinesh Khara, CMD, State Bank of India: The RBI policy of maintaining the status quo was expected but the continued forward guidance of an extended accommodative stance will continue to serve the markets well. The upward revision of the FY 21 GDP growth rate to -7.5 percent emphasizes that the worst is behind us though we must remain watchful. The central bank announcement of the extension of on-tap TLTRO to stressed sectors is a perfect example of coordinated monetary and fiscal policy coordination, a hallmark of the current pandemic. Allowing the RRBs to access the liquidity adjustment facility, will help RRBs to efficiently deploy and diversify their surplus funds and enlarge the reverse repo window. The move towards the strengthening of supervision of financial entities will right-size the three lines of defense in pursuit of an effective risk management framework. Measures such as digital payments supervision, deepening financial markets, and ensuring ease of doing business for export transactions are useful steps.
CH. S. S. Mallikarjuna Rao, MD & CEO Of Punjab National Bank: The growth is expected to be better with the GDP estimate being revised upwards for FY21. Liquidity measures have been announced to revive activity and On Tap TLTRO has been extended to the stressed sectors identified by the Kamath committee. The credit offtake is expected to get a boost going forward we expect it to top at least 8% in the days to come."
AK Das, Managing Director & CEO, Bank of India: The Policy while maintaining accommodative stance and keeping benchmark rates steady, aims towards financial stability. Acknowledging transient elevated inflation, the policy has adopted a balanced approach. Overall, a pragmatic policy to nurture growth and contain inflation post COVID-19.
Rajiv Sabharwal, MD and CEO, Tata Capital: The complete restoration of supply chain in the near term will bring clarity on the inflation glidepath. The credit off-take revival has so far been slow, but green spouts are visible in certain sectors which must be nurtured. RBI clearly acknowledges the need to further incentivize demand for a broad based activity pickup. RBI maintains its resolve to strengthen growth in the economy
The comfortable systemic liquidity has been key to efficient rate transmission which is seen across the interest rate curve and has shown strong south bias. We may see a gradual unwind and calibrated tightening of excess systemic liquidity in the next quarter. At the same time the markets have been assured of optimum support with no undue liquidity shocks that could impact sentiments. The announcements regarding dividend distribution, scale-based regulatory framework for NBFCs and strengthening of audit systems will bring in more transparency and efficiency to the financial sector.
Zarin Daruwala, CEO, India, Standard Chartered Bank: “RBI reiterated its commitment to shore up economic growth by continuing with its accommodative stance and ensuring surplus system liquidity. The widening of liquidity support through targeted long-term repo operation (TLTRO) 2.0 to the 26 stressed sectors will help direct much needed credit to these sectors. Several policy measures proposed to strengthen and deepen the credit default swaps, derivatives and corporate bond markets should not only improve participation but should also pave the way for further development. Enhancements in the payment and settlement mechanisms will help reduce systemic risk and improve customer experience.
Dilip Asbe, MD & CEO, National Payments Corporation of India: Increase in ceiling limit of recurring transactions and e-mandates is a welcome step. The increased limit will help boost average value of transaction and push adoption of digital payments. The announcement will help RuPay cardholders to make secured contactless transactions of upto Rs. 5000 on the go thereby facilitating them with hassle free transaction experience. Similarly, this will be a major boost to the users of recently launched UPI AutoPay functionality for the customers to execute their high ticket recurring payments like utility bills, investments, two-wheeler EMIs, consumer durable EMIs etc. seamlessly. The move will also help customers to on-board into BHIM UPI for performing easy and convenient P2P and P2M transactions.
Umesh Revankar, MD and CEO, Shriram Transport Finance: The monetary policy was along expected lines and is in continuation of the measures announced by RBI over last couple of quarters. Status quo on rates maintained for third consecutive policy while reiterating accommodative stance for as long as necessary, atleast in current year and going into next fiscal year augurs well for economic recovery and financial stability. It is good to see that the pro-growth measures being taken have not only kept rural economy resilient but also helped urban demand gain momentum in recent months. While liquidity has been ample, steps to widen on-tap TLTROs to cover other sectors should facilitate in faster recuperation and eventually economic expansion. Lastly, the regulator has proposed to put in place a criteria for dividend distribution and introduce risk-based audit for large NBFCs and co-operative banks, and we welcome that as a systemically important constituent of India’s financial services universe.