Cut in the CRR to give banks some room to reduce lending rates: Amitabh Chaudhry

Interview with Amitabh Chaudhry, CEO, HDFC Life

Amitabh Chaudhry, CEO, HDFC Life tells Jinsy Mathew the impact of the RBI annoncment on home loans and the Bankex index

Your reaction to the RBI announcement

The RBI has taken a positive step in cutting CRR by 25 bps, to pre-empt the expected tightening in liquidity. The CRR has been cut  to ensure that credit availability from banks is not affected, even though RBI's primary concern is inflation. RBI is clearly uncomfortable with the persistence of non-food inflation at elevated levels, inspite of a slowdown in growth. In such an environment, the CRR cut and status quo on Repo rates attests to RBI's management of the Monetary Policy. We expect that the future path of the Monetary Policy will be determined by the Government's policy actions and the trajectory of inflation.

Some of the bankers have already gone ahead with home loan rate cuts recently. Do you see other banks following the trend and would it help revive the home loan growth as property prices continue to remain elevated?

We expect that the reduction in the home loan rates will have a marginal impact on growth in home loans. Affordability is going to be the key factor which will determine the pace of growth in this sector. As you have rightly pointed out, property prices continue to remain elevated in some regions. The cut in the CRR will definitely give banks some room to cut lending rates.

Bankex has reacted sharply. Do you see selling pressure in the near term and should one go for value buying?

The selling pressure on banks is primarily driven by the concerns on asset quality. The slowdown in the economy has seen an increase in the amount of re-structured loans with banks. In today's policy, RBI has increased the provisioning for re-structured assets. This will be a drag on the banks' profitability in the near term. Moreover, the market was expecting a rate cut in the monetary policy. The disappointment on this front is reflected in the markets today. Going forward, we expect that the stock prices will depend on the developments at each bank, how the NPLs pan out, management of restructured loans and their individual growth and profitability expectations..