Food inflation to cool down going forward: Mundra

A: We will get to know in an hour's time, but my expectation is there may be a pause as far as the repo rate is concerned and there maybe some action on the Cash Reserve Ratio (CRR) side, though as a banker I would not like it, but this is a slightly different take which I am taking. The liquidity as of today in the system is good and the credit demand is subdued. As I have mentioned many times that the liability upside of a typical Indian bank largely consists of the customer deposits rather than the market-related instruments. So if there is a repo hike it will all depend on how the liquidity remains in the market and the ability of the banks to mobilise the deposits. If deposit rates were to go up, if liquidity position changes, then the overall scenario would change.

Q: In case there is a 50-bps rate hike do you think that will be signal enough for rates to move up in the system?

A: Of course if there is going to be a 50-bps rate hike, it would be a very strong signal,. Ultimately the question is whether I have the liquidity, or whether I have the ability to raise the liquidity at a certain price that will determine my lending price. If liquidity continues to be good, if there is ability to mobilise the deposit, and as I mentioned if there is a subdued credit demand, we have to strike a balance between the demand and the pricing that we would like to command. So I think once that situation comes and how the market moves, we will have to assess the situation very carefully.

Q: You are expecting a pause in the repo rate today. If there is a 25 bps rate hike do you think it could be the last one in this fiscal? Rates are heading lower. The talk is that inflation could have peaked out. Food prices have started to cool off as we have seen in the last week of November. So do you think that rates will be headed lower now?

A: If there is a rate action now as we said the Consumer Price Index (CPI) inflation had been 11.2 percent, but within that if you look at the food component, it had been 14.5 percent. Expectation is that the food prices as the after-impact of good monsoon and everything should cool down. If there were to be a policy hike today, and if the inflation trajectory looks to be that either it is peaked out or some benign sentiment then I would probably expect a pause for sometime.

Q: What is your opinion on the draft Non-Performing Asset (NPA) norms by RBI? What is your first reaction to those norms?

A: If you look at the kind of early detection in last three-four years with the improvement in technology and developments around every bank one way or other had established the system of early detection. But this draft goes a little beyond that for two-three reasons. Number one, it will bring a uniformity across the industry, so any data coming could be analysed and looked into in a more meaningful fashion.

The second, the exchange of information becomes much stronger. So from the perspective of credit discipline and early resolution I think it is a step in the right direction and it would enable to banking community to exchange the information and be on the same page with each other with more agility. Then of course there are inbuilt incentives and disincentives, but it certainly is a clear call to the borrowers. They need to have more skills and be more responsible, and at the same time for lenders, very clearly, if there is a quick action there are incentives, if there is a lethargy or attempt to delay an action then there would be penalties.