What do bankers read into RBI’s credit policy?

According to Parthasarthy, the fact that RBI has left rates untouched is indicative of the view that interest rates are reasonably high and need not be hiked further at this point in time. He doesn’t see PLRs going up. 

OP Bhatt, Chairman, State Bank of India said, " The CRR hike will suck some liquidity out of the system. The RBI continues to be mindful of inflation and they have balanced the act between growth and inflation excellently."

Chanda Kochhar, Joint MD of ICICI Bank sees many other positive signals in the policy. She said, "If you see clearly we are saying that the growth rates are and are going to be between 8-8.5%. There is a clear signal here that the growth rates are expected to continue at above 8%. If one reads further, it clearly says that the credit growth is positive because if we read in the details, the credit growth on the services sector and the industrial sector has been very robust."

According to her, the signal is that as a country certain priorities growth is one priority and the momentum of investments currently continues to stay and as long as the focus is on that, we would as country ensure that the growth is here to stay.

On CRR, she said, "Clearly there is a very big indication here in the policy statement to say that henceforth monetary policies will concentrate on liquidity management and the interest rate decisions will be left to the banking sector and to the banks. This is clearly what the policy is trying to do. It seems that there is enough liquidity in the system; also the Governor has said that we will keep options open to take measures as we go along."

But as of now, it’s not necessary to assume that an impact on CRR is going to increase cost of deposits. We will have to watch what is the impact of the CRR hike and not just that, but more so the way liquidity moves in the system and how that impacts costs of deposits and only if it does affect cost of deposits, will you see any increase in lending rates.

On the impact on NIMs, she said, "As of now the impact on NIM is going to be minimal. In the month of March this year itself the interest rates were much more subdued than they what normally are in other years in the month of March. After that, if at all, there has been some amount of softening in the wholesale deposit rates, so there is currently no increase in cost of deposits and therefore there is no need to assume that there will be any impact on the lending rates immediately."

"If one reads the whole policy, then it's much less hawkish than what people were expecting it to be, so I don’t read it as hawkish. What I read is that there is a recognition that to handle inflation there is also a supply side correction to be done and I think that is clear recognition to say that supply side measures do take a little time by which the correction can start and therefore the expectation levels have been set at these levels," she continues.

On interest rates she said, "In general what happens to interest rates will depend on the cost of deposits and not just by the movement of CRR."