Views of Mr. R.K.Gurumurthy

 Views of Mr. R.K.Gurumurthy, Head – Treasury, Lakshmi Vilas Bank 

on the RBI Monetary policy announcement today

 Quote

 Festivities begin in bond street earlier than one expected. RBI’s MPC’s new combination of external members announced an operationally more dovish policy without cutting rates and should be a watershed event for the broader economy.  In what is seen as a comprehensive approach to addressing both inflation and growth, the measures are a continuation of the accommodative stance we have seen over last 9 months.

 Repo and Reverse Repo rates remain unchanged. Special dispensation for HTM holding extended until March 2022 with a provision to buy Government securities until March 2021 and hold the same in HTM to an extent of 22% of NDTL. OMO amount increased to 20k per auction, TLTROs made an on-tap facility and end-use is sector specific with thrust towards NBFCs. Current spurt in retail inflation considered transient and RBI sticks to earlier estimates and is optimistic of containing within its forecast range. Most creative and unconventional is the announcement of OMO Purchases of State Development Loans. This will ensure the states’ borrowing program is non-disruptive and the cost remains anchored to broader market realities.   Other key measures include linking risk weight for home loans to LTVs and making RTGS a 24x7 payment system on the same lines of NEFT.

 The policy measures recognize the growth risk the economy faces and the imperativeness of providing liquidity for growth.  Recent measures and the cut-offs in auctions that RBI was not comfortable with higher yields and today’s policy reinforces that thought. Once inflation, which remains a supply-side disruption currently, softens, RBI should be willing to cut rates and we expect atleast a 35 basis cut this FY. The decision to hold rates steady would also help to protect NIMs of Banks as a majority of the loan book is linked to the Repo or other floating benchmarks.

Quote by Mr Dinesh Kmar Khara Chairman

Quote by Mr. Dinesh Kmar Khara Chairman, SBI on RBI's Monetary Policy

“Today’s policy statement by RBI is a perfect exposition of doing “whatever it takes” to revive growth. With growth projections at -9.5 percent and inflation set to be higher at least for now and the possibility of renewed infections in many countries, the monetary policy committee has righty chosen to keep the policy stance accommodative and relying more on discretion based policy responses rather than being strictly rule-based. 

Accordingly, the decision to go down the OMO route for SDL borrowings, increasing the limit for risk weights for the retail portfolio up to Rs. 7.5 crores and linking housing loan risk weights to LTV ratio are policy innovations that will please the markets and nudge the term structure of rates lower. The policy has also targeted specific sectors that have high forward and backward linkages notably the retail and real estate sector. 

Additionally, the decision to operationalize the Co-origination model is right as it brings the best of banks and NBFC together. This will surely increase the reach of the financial sector at such a critical point. The other focus of development and regulatory policy namely discontinuation of automatic caution listing for exporters, 24x7 availability of RTGS, and perpetual validity of CoAs issued to payment operators are also welcome measures. Overall the policy is fixated to revive growth and has attempted to prepare a conducive ground for the same.”