Bankers seek steep rate cuts

RBI asked to reduce CRR by 75 basis points, repo rate by 50

Bankers have asked the Reserve Bank of India (RBI) for a steep reduction in the cash reserve ratio (CRR) and the repo rate in the annual policy review scheduled for April 17.

The request was put forth at the customary pre-policy meeting on Wednesday between top banks, including State Bank of India and Bank of Baroda, RBI governor D Subbarao and the central bank’s deputy governors.

According to bankers, most of them requested the central bank to reverse the policy stance by cutting the repo rate by 50 basis points and also demanded reduction in the cash reserve ratio to the extent of 75 basis points.

“... it (the bankers’ feedback) alternated between CRR cut and rate cut, maybe a combination of the two ... some said only rate (cut) and some said only CRR cut, some said both,” State Bank of India Chairman Pratip Chaudhuri said after the meeting with the RBI top brass.

Chaudhuri said he was a strong supporter of a CRR cut, and hoped for a 75-basis point reduction on April 17, which might help banks bring down the spread between base rate and actual lending rates.

RBI has reduced CRR — the proportion of cash banks have to keep with RBI — by 125 basis points to 4.75 per cent since January to ease liquidity. The repo rate, which was kept unchanged in the last two policy reviews, stands at 8.50 per cent. Between March 2010 and October 2011, the repo rate was hiked by 13 times to contain rise in prices. Bankers said high oil prices may deter RBI from cutting interest rates.

SBI, however, ruled out a cut in deposit rates even if CRR is lowered. “Deposit rate is a different ball game. Deposit rate doesn’t depend on CRR. Deposit rate depends more on what alternative instruments are offering. If government savings (schemes) is offering 8.6 per cent and if we bring down the deposit rate to eight per cent, all our deposit flies away,” Chaudhuri said.

SBI has currently raised the short term deposit rates by 25-100 basis points.

Bankers said RBI wanted to know the reasons behind the sharp fall in deposit growth. Deposit growth fell from a high of 19 per cent in September to 13.36 per cent in March, data from RBI showed. Bankers said corporate sector has gone slow on short-term loans due to high rates and are instead withdrawing deposits to meet working capital needs. They are also paying their external debt through bank deposits.