Commercial banks, which are experiencing high cost of borrowings due to non-availability of easy money, are unlikely to hike their interest rates after the Reserve Bank of India maintained status quo in its April-June policy leaving the policy rate unchanged.
Must read: RBI Credit Policy: Leaves key rates unchanged, reflects no hawkish stance
"Loan demand is weak. Steps (RBI liquidity measures) are temporary. We are watching and will wait for next two-three weeks so as to see how long those continue. We do not rely on mutual funds for day to day fund requirement. We have huge deposit base," said Pratip Chaudhuri, chairman - the State Bank of India ( SBI ) in the post-policy conference.
The central bank had earlier taken a series of liquidity tightening measures, which were aimed at making money costlier. This in turn, would create demand for rupee, a favourable factor to check the exchange rate volatility.
Meanwhile, RBI hinted at rolling back those measures gradually in its policy document as stability restored to the foreign exchange market enabling monetary policy to revert to supporting growth with continuing vigil on inflation, RBI said.
According to Chanda Kochhar, managing director, ICICI Bank ; short term borrowing rates have come down.
"What will happen to long term rates, it has to be seen over a period of time. Some trends need to be seen (before any rate action happens)," she said.
All the liquidity hardening measures were seen as an alternative to hiking rates. Even a section of market participants expected the central bank to hike rates. The effective rate has already gone to 10.25 percent through Marginal Standing Facility (MSF) window. Bank can currently raise around Rs 31,000-32,000 crore through repo window due to the RBI curbs.
"It all depends on our cost of funds and short term rates are only a portion of that. Currently, I do not see any need to raise rates immediately," Shikha Sharma, Managing Director and CEO of Axis Bank said briefly.
Meanwhile, the banks have asked for some relaxation of provisioning norms from the RBI. They have also sought for a waiver of the recent mandate that asks banks to maintain a daily average of 99 percent cash reserve ratio (currently at 4 percent).
"In a slowing economy, asset quality is going to be impacted. We have requested the regulator to ease some provisioning norms like on standard restructured loans. Moreover, maintaining 99 percent daily CRR is operationally difficult for banks," said K R Kamath, CMD, Punjab National Bank .
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