RBI likely to leave key rates untouched, say bankers

Surplus liquidity in the banking system and low demand for credit might prompt the Reserve Bank of India (RBI) to maintain a status-quo in its key rates, bankers have said.

In the quarterly review of its annual monetary policy on Tuesday, the central bank is also likely to lay out a more clear roadmap to conduct the government borrowing programme in a smooth manner and may hike the GDP and inflation forecast for FY'10, they said.

"There is enough liquidity in the banking system, even though, they may keep headroom to lower the CRR (cash reserve ratio), any cut is unlikely in the current policy. It may leave the repo and reverse repo rates unchanged," Uco Bank CMD S K Goel told PTI. 

Given the difficult market conditions, the apex bank may relax the NPA norms for stress-ridden sectors and extend the deadline for loan restructuring, Goel said. 

The possibility of hiking the SLR (statutory liquidity ratio) requirement of banks to 25 per cent from the current 24 per cent cannot be completely ruled out, he added.     

To arrest the slowdown in the economy by stimulating demand the apex bank has trimmed its CRR to 5 per cent, repo and reverse repo rates to 4.75 per cent and 3.25 per cent respectively since October last year.

"RBI may lower the credit and deposit targets for banks as it is difficult to meet those in the prevailing conditions," Bank of Baroda Chief Economist Rupa Rege Nitsure said.     

In its annual monetary policy, the central bank had set the credit target for banks at 20 per cent and deposit base at 18 per cent.     

With the economy showing signs of recovery, there are chances of the central bank reviewing its GDP and inflation targets for the fiscal to 6-6.5 per cent and 5 per cent respectively as against 6 per cent and 4.5 per cent projected earlier, Nitsure said.     

Any change in the RBI key rates is unlikely in view of excess liquidity in the system, Nitsure said.     

The central bank is widely expected to come out with a clearer picture on how to go about the massive government borrowing programme to cause less disruptions in the market.     

A slew of measures are likely to alleviate the pressure on banks on account of large defaults, Kotak Mahindra Bank's Group Head of retail liabilities K V S Manian said.     

This may include the extension of loan restructuring facility till December, Manian said. Bankers had sought extension of loan restructuring facility till December against the earlier deadline of June 30 in a meeting with the RBI Governor D Subbarao.     

They also wanted the central bank to ease the NPA norms in certain sectors, particularly infrastructure.     

RBI Deputy Governor K C Chakrabarty has recently said the RBI's effort was to ensure a stable and benign interest rate regime, comfortable liquidity and adequate credit flow to productive sectors.