BS Jury

Pratip Chaudhuri
Chairman, State Bank of India

While lead indictors are pointing towards a distinct slowing of the economic momentum, there are also some signs of a sequential moderation in inflation, which is likely to decline by year end on the back of improved agricultural supplies and the base effect. Also, the full impact of the past rate hikes are still to percolate through to the economy. Global conditions have deteriorated sharply, increasing uncertainty in the global economy. Against this background, RBI has raised Repo Rate by 25 bps to 8.50 per cent with guidance that further rate hikes may not be warranted if the inflation trajectory moves down. Financial sector reforms have been carried forward with deregulation of Savings Bank interest rates, further liberalisation in branch expansion policy of banks, proposed relook at definition of priority sector, streamlining credit delivery to MSMEs, financial inclusion, etc. Overall, a well balanced policy.

 

Chanda Kochhar
MD & CEO, ICICI Bank

The mid-year review has initiated a smooth transition in the monetary policy stance. RBI has continued with monetary tightening to take the anti-inflationary measures to their logical conclusion. At the same time, it has signalled a transition in the stance by indicating that the likelihood of another rate hike is low given the likely moderation in inflation going forward. It also outlines several other measures, most notably the deregulation of savings account interest rates. Banks will work out their product strategies to ensure stability of liability franchises and appropriate management of the overall cost of intermediating savings and providing banking services. The freeing up of branch licensing in Tier-II centres is also a welcome measure that will give greater flexibility to banks in expanding their networks. The moderation in inflation could provide room for monetary policy to address growth risks.

The policy statement has also comprehensively articulated the global and domestic factors that are relevant for India's economy and the areas we need to focus on as a country. Appropriate measures in these areas would support growth and also address the supply side drivers of inflation over the medium-term.

Venu Srinivasan
Chairman & MD, TVS Motor Co

Basically we have come to the end of the rate hikes as the economy seems to be showing signs that it cant take it anymore. We will now surely go into a transformation as far as demand is concerned with growth expected to come down significantly. So far, this year, with the number of hikes we have seen, there seems to be no end to inflation with no correlation between them. The fact that schemes like National Rural Employment Guarantee Act (NREGA) implied in the rural sector with the aim of boosting employment and the general economic situation has inadvertently led to a situation where supply side of the food is being impacted. A lot more money is chasing limited food supply leading to rise in prices. Prices of essential commodities have been high anyway. on Tuesday’s hike will lead to a slowdown in growth particularly in the rural areas. Gradually, we will see a similar economic slowdown in the industrial sector as well.

If one sees the impact of the rate hike, credit growth in the banking system has come down sharply. Infrastructure companies like Larsen and Toubro have witnessed the impact. We economic growth in the GDP which was slated to be slightly above 7 per cent will further come down to 6.7-6.8 per cent. This should be of a greater concern as the rate of unemployment could go up. We have 15 million people coming out of schools every year. This is certainly not rosy picture and serious efforts should be made to tackle this issue. The RBI has probably realised that the economy is showing visible signs of a slow down and hence it has said that till December there wont be any further rate hikes.

Vikas Oberoi
Chairman & MD, Oberoi Realty

The Reserve Bank of India (RBI) has raised the repo rate by 25 basis points to 8.25 per cent. This was expected. The RBI is trying to control inflation and is willing to sacrifice growth in the short term for its long-term objective. It has raised the key rates thirteen times since March, 2010 and on Tuesday lowered the growth forecast. Now, we need to see if banks pass on this increase to their customers. Even if banks transfer the increase, I do not think there would be any major impact on housing demand because on a Rs 1 crore housing loan, there would be an additional burden of Rs 25,000 per year. I do not think it will matter. I believe that real estate may not get affected due to increase in interest rates bu the RBI as there is a strong demand for housing, these days. I am sure, the central bank, has its own compulsion to do so.

Ajay Srinivasan
CEO, Financial Services, Aditya Birla Group

The central bank hiked the repo rate by 25bps but hinted that any policy action going forward would hinge on the evolving growth (primarily investment) potential for the economy. There seems to be a shift in the monetary stance that has had a steadfast anti-inflationary bias for the last 18 months. The shift in stance is probably a result of two key factors. First and foremost is the moderation in growth. RBI reduced its growth forecast in FY12 from 8 per cent to 7.6 per cent and there are probably enough headwinds going forward to drive this lower. Growth slowdown has been due to weak trends in both investment and consumption. Moreover, slowing global growth is adding further downside risks to Indian growth. Second is the outlook for India’s inflation. Despite citing risks such as incomplete global commodities price pass through and the inflationary impact of currency depreciation, RBI has kept its 7 per cent inflation guidance unchanged. RBI points to moderation in quarter-on-quarter seasonally adjusted WPI momentum and the on-going demand slowdown is expected to reinforce it in the coming months. Our expectation on WPI inflation is for a 6.50 – 7% number by March 2012. The hikes of the past however are expected to cost us on growth. We expect GDP growth around 7.5% in FY12. Moreover the demand slowdown seems to be a bit more prolonged. While there were some important policy announcements, the de-regulation of savings rate is probably the most significant. This could enable banks with a lower CASA to now differentiate their product and there is the potential of cost of funds for the banking system as a whole going up, atleast in the short term. Moreover, if liquidity doesn’t improve by Q4 when banks generally struggle to raise deposits, we could see material increase in deposit rates.

Keki Mistry
Vice-Chairman & CEO, HDFC

The 25 basis points increase in the repo and reverse repo rates were in line with market expectations. The Reserve Bank of India’s (RBI) guidance on inflation tempering down by December, 2011 reaffirms market consensus that there would be a pause in further rate rises. Though the policy statement does not explicitly mention that banks should not recover prepayment charges on floating rate loans, it can be assumed that this is the intention of the RBI. This signals a level playing field between housing finance companies and banks. In a higher interest rate environment, the deregulation of the savings bank deposit rate is beneficial to the common man. Deregulation should not result in any significant change since most individuals transact with a particular bank due to convenience or habit and are unlikely to change their bank due to marginally higher rates being offered by another bank.