Banks will have to be careful: Abheek Barua

There isn’t much to look at in the Interim Budget. The government has made it clear that the fiscal situation is unlikely to improve in a hurry. We, at HDFC, had projected the fiscal deficit to around 5.9 per cent. The government has pegged it at 6 per cent. This may go up more.

Thus, there are implications for market borrowing projections and bond yields. It’s likely that the government could end up reversing the interest rate cycle if there’s no supportive monetary policy to back it up. Bond yields may move upwards, forcing banks to be careful about their bond portfolio. Banks could, perhaps, drop interest rates. However, they would have to be careful about repricing loans unless the RBI is willing to support the government programme with an expansion monetary policy (a CRR or cash reserve ratio, et cetera).

Abheek Barua, Chief Economist, HDFC Bank