CRR hike at this stage would be surprising: Centurion BoP

Shailendra Bhandari, MD Of Centurion Bank Of Punjab feels that there is no need for a rate hike today. He feels that RBI may hike reverse repo as a symbol. So, he feels that there is no likelihood of a rate hike in CRR & repo rates.

The reason for this, he says, is that there are no enough data points for the RBI to move, after March action. However, the RBI was likely to remain hawkish, he maintains.

Excerpts from CNBC-TV18's exclusive interview with Shailendra Bhandari:

Q: Are you with consensus that there will be no rate hikes today?

A: I am in the consensus that there is probably no need for one just now. There have been lots of measures that have taken place. Typically, each of these takes a time-lag of 3-18 months. I think the Reserve Bank looks at a series of data when it takes action. Last week’s inflation numbers had spooked some people. But the reality is that, if you look at the entire series and the growth in credit, there has been a need for action, which has been taken.

If at all there is any move, it would possibly be a symbolic move; probably a change in the reverse repo rate. But certainly, I am not expecting any change in the CRR or indeed the repo rate.

Q: If there is no rate move, will it be more because the FM would rather like to wait for a bit, or do you think it's just a pause from the market’s perspective and he would do it one month down the line, anyway?

A: He might. I think the toughest thing for any Central Bank is to manufacture a soft landing; it’s like slamming the breaks now, because if you slam them too hard, that, in itself is a crash. What he doesn’t want to risk is, getting growth down to a level where suddenly from 9%, we look at sub-6%.

So I will presume that in his usual slow measured manner he would look at more data. He might do something after maybe two months, but I do not think there are enough data points for him, for now, to do a further move.

Q: What’s your sense of what he would like to see in terms of credit growth, because he seems to be more focused on that number rather than the headline WPI inflation numbers? It has cooled off a bit to about 28% odd. If it hovers around this, do you think it will press the button again?

A: I am pretty sure he would. People keep talking inflation, but the reality is that a lot of inflation is on the supply side. As the Central Bank, our concern is on credit. I think they have clearly said that, with deposits growing around 20%, credit should be not much more than that.

So, if credit comes down to sub-25%, maybe 22-23%, that will be acceptable. Over a long period of time would probably lead to more measures. Having said that, 22-23% is still an excellent growth, it will easily support the GDP growth of around 7.5-8%.

Q: Would a CRR hike surprise you today, after what he did at the end of March?

A: It would, for the simple reason that we haven’t even completed the full effect of the last CRR hike and you don’t want to run the risk of overshooting.

Q: Even if he does not raise rates today, do you think he may signal that he is not done with raising rates? Would that be along expected lines?

A: Absolutely, because with credit not yet in the low 20s, and with inflation not yet below 5%, it’s a given that he has to still talk hawkish. I would be surprised, if he didn’t make some reasonably tough comments on both of these.

Q: How would the market react if what you are expecting is delivered i.e. no rate hike, some hawkish statement and some indication that rates probably will harden going forward. Do you think the markets will rejoice or do you think they will remain in this kind of an uncertain mood?

A: I hope they do not rejoice, because then you risk overshooting somewhere else. The markets would probably be reasonably happy with that, because you do the RBI taking its eye off the ball. You do want the RBI to say - we are concerned, we have not changed our opinion, but we are not going to do a knee-jerk. It would probably show a more reasonable and measured sort of an attitude. I think they would be quite happy. 

Q: Do you think he might target a few sectors like he has done before, even if he does not raise the headline rates - Repo or CRR could be specific on real estate or any other sector which is bothering RBI now?

A: There is anticipation that may do that. I can’t gauge the mood in the RBI; their concerns are on asset bubbles specially real estate. The problem is that, how the real estate development cannot push up home loan rates. So, they have to do a tough balancing act and they may decide to target a few areas.

Q: What’s your own call, because the stock market is grappling with that big question? Are interest-rates headed towards a peak? Are they very near the peak, or almost have peaked out, in which case, will the markets take a different turn?

A: Both the big picture numbers, which are credit growth and inflation, will come under control within this quarter. For inflation, the base effect will come kicking in a few weeks from now. Most probably unless something untoward happens, WPI is going to go below 5% sometime within June. For credit growth, April to June is the worst quarter and I would expect to see this quarter have quite a mild credit growth on a normal historic basis.

So that would probably give some sense of comfort to the market, unless July-September, especially around Diwali-Dussehra, things hit up, we could be coming close to the end. I would probably go with the consensus saying of one more rate hike somewhere along the line. 

Q: What kind of an environment is it for banks to operate in? The market is a little cautious about the bank stocks in terms of credit growth, credit quality. How difficult is this environment for you over the next 8-9 months?

A: Credit growth is being targeted by the RBI and they would like to see it slowdown. For a bank like ours, which is a smaller bank, we always grow at a multiple to the market, we typically grow more then 2-2.5 times the market. If the market slows down, we will continue to do a multiple to the market.

Apart from a few areas like real estate, home loans, mortgages, which are projects under development - the reality is that, credit quality is yet to get worse. Economy is doing well, 9% to 7.5% is still an economy which is growing well. So there are concerns, their margins have been squeezed but it's still a reasonably benign environment.

Q: Are these things easy to foresee or these things only manifest themselves after a point they and are not terribly easy to predict?

A: You can see them coming. In retail, it tends to be easier because these things typically move in waves; if you see something as simple as a new loan or your first cheque bounces or it goes up from x-percent to y-percent, you can see that.

But what we see, is that there is no secular change in trend. We would be able to see the pattern coming, and as of now the pattern has not changed in a significant manner.