Bankers and analysts were positively surprised with the slew of liquidity-enabling measures announced in an otherwise expected RBI monetary policy that left the key rates unchanged at 5.15 per cent.
The market has taken the long-term repos worth Rs 1 trillion as the biggest developmental and regulatory step that came out of the blue, they said. So is the CRR buffer benefits for lending to the growth-oriented sectors such as to housing, auto and small units.
The Reserve Bank announced long-term repurchase agreements (repos) of one-year and three-year tenors of appropriate sizes, totalling Rs 1 trillion at the policy repo rate, from the fortnight beginning on February 15.
Bankers and analysts are unanimous that these measures would infuse liquidity on one hand and ensure cheaper credit flow to the needy-segments of the economy.
SBI Chairman Rajnish Kumar said the policy is "a statement of intent" carefully using a repository of policy novelties to address the current delicate balance of growth and inflation.
"While keeping rates on hold was anticipated, the bouquet of developmental and regulatory steps is a positive surprise to the financial ecosystem.
"Long-term repos for 1-year and 3 year at the repo rate, will bring down cost of funds for banks and will facilitate better transmission within the current constraints of downward rigidity of deposit rates," Kumar said.
Similarly, exemption of CRR maintenance for all additional loans given for retail loans like auto, housing, and to MSMEs is positive for all banks and to these targeted sectors. This will also help lower the cost of funds.
Extension of date of commencement of commercial operations of project loans for commercial realty by one more year without downgrading the asset classification will allow realtors to focus on project completion.
Extending the date of recasting MSME loans will also help the sector to navigate the current downturn and is a logical corollary of budget announcement, Kumar said.
Welcoming the policy, Icra's Aditi Nayar said the dovish tone along with reiteration that policy space is available for future action is a big positive.
"We anticipate that the stance will be maintained as accommodative as long as RBI perceives the output gap to be negative, regardless of the level of inflation. So we no longer expect the stance to be changed to neutral in the next few policies," she said.
Zarin Daruwala of Standard Chartered Bank India said, "The MPC delivered a strong pro-growth policy in the face of sluggish growth and high inflation."
Cash reserve ratio leeway for fresh retail and MSME loans, a one-time permission to extend restructuring of MSME loans and concessional one-to-three year repo funds are all positive steps to bring down lending rates, she said.
Crisil's Krishnan Sitaraman said, "The move to exempt banks from CRR requirements for incremental loans to auto, housing and MSMEs will have a salutary effect on channeling of credit to these sectors and can play a role in addressing the sluggishness seen in these sectors."
Similarly, the extension of date of commencement of commercial operations by one more year for project loans for commercial realty will bring some relief to projects which are genuinely delayed due to business reasons. This can arrest the fresh slippages in this segment.
Linking MSME loans to external benchmarks will accelerate interest rate transmission and lighten interest burden. Also, extending the one-time restructuring window for them will bring some more relief to the sector and keep sectoral NPAs under control.
Terming the RBI policy as "quite progressive and forward looking" A K Das of Bank of India said the long-term repos open up ways to transmit the signal rate changes.
Measures for realty and MSMEs and CRR exemption for incremental retail and housing loans are growth-oriented and will give an impetus to bank lending, he added.
Describing the policy as a "whatever it takes" moment for the country and policymakers, B Prasanna of ICICI Bank said these steps show willingness of MPC to think laterally.
"The crowning glory of all measures is the provision of long-term repos at the repo rate that is intended towards facilitating better transmission in the bond and loan markets. Besides lowering rates in the short end of the sovereign curve it is also likely to lower corporate bond yields, deposit rates and lending rates," he said.
Sunil Kumar Sinha of India Ratings said, "If the monsoon does not turn out to be normal, then the inflation forecast can have adverse impact on the food inflation which is already witnessing pressure from rising prices of items such as pulses and coarse cereals."
"Given this, despite continuing with the accommodative stance, RBI is unlikely to tinker with the policy rate till the second quarter of FY21," he said.