No immediate respite, credit growth to be slow: Bankers

Offtake to pick up only after central bank starts cutting rates, they say.

Though the Reserve Bank of India (RBI) opted for a pause in the monetary tightening cycle, bankers said there would be no immediate improvement in slow credit growth and the high interest rate regime.

After raising key policy rates 13 times since March 2010, RBI on Friday left interest rates unchanged, signalling the end of the monetary tightening cycle in the mid-quarter monetary policy review. It said further rate rises may not be warranted and that future policy actions were likely to respond more to “downside risks to growth”, rather than “upside risks to inflation”.

Bankers said clear indications that interest rates had peaked and that the central bank may start reducing policy rates in the next review in March, would lift market sentiments. It may translate into higher credit offtake in the first quarter of the next financial year.

Diwakar Gupta, managing director and chief finance officer, State Bank of India, said, “I don't expect inflation to suddenly fall to six-seven per cent. So, rate cuts by RBI may happen only at the end of January-March or even spill over to the next financial year. Though the emphasis on growth and the change in monetary stance raises hopes of better sentiments in the economy, it may not translate into an immediate improvement in credit growth in the fourth quarter,” he added.

K V Kamath, non-executive chairman, ICICI Bank, said, “The mood is negative, especially in infrastructure. Though the pause in rate rises is a positive move, certain steps would have to be taken to change the overall mood. We would have to be patient as far as cuts in interest rates are concerned.”

Bankers said year-on-year credit growth, which fell below RBI's projection of 18 per cent to 17.5 per cent as on December 2, was unlikely to improve in the current financial year. Ravi Kumar, chief financial officer, Bank of India, said, “Although RBI has not raised the repo rate, interest rates remain high. Keeping in mind the high interest rate scenario, the credit growth this financial year would only be around 16 per cent.”

M Narendra, chairman and managing director, Indian Overseas Bank, said, “Government borrowings and advance tax payments have contributed to the liquidity crunch. Liquidity is not a worry, as the central bank has said when required, it would provide additional OMOs (open market operations).”

Average borrowings under the daily liquidity adjustment facility rose to around Rs 89,000 crore during November-December (up to December 15) from around Rs 49,000 crore in April-October, indicating an increase in liquidity deficit. To ease liquidity conditions, the central bank conducted three OMOs in November-December for an amount aggregating about Rs 24,000 crore.

“There are currently no significant signs of stress in the money market. The overnight call money rate is stable, around the policy repo rate, and liquidity facilities like the marginal standing facility remain unutilised. However, owing to the fact that borrowings from the liquidity adjustment facility are persistently above the central bank's comfort zone, further OMOs would be conducted, as and when appropriate,” RBI said.