Will RBI give Indian banks a 25 per cent rate cut by 2017?

It is the government's turn to stick to its commitment on payments and clear litigation issues.

 |  2-minute read |   27-08-2016
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There has been much debate over the monetary policy, inflation targeting and the role of RBI in maintaining price stability, and choosing the right man for the top job. So much for all the rhetoric. The RBI should not be solely responsible for reviving the economy.

It is the government's turn to stick to its commitment on payments and clear litigation issues, especially finalising the bankruptcy code, redefining the role of debt recovery tribunals and more.

rb_082716010633.jpg The retail lending in India is reportedly way less than other developing nations in the same bracket. It is said to be even less than ten per cent of the GDP.

The government also needs to perform - market payments to be met on time, enforcement processes to be geared a lot more than now and fast forward action in clearing pending legislations. All these are without a doubt outside the purview of RBI.

If corporate credit demand does not pick up, banks can turn to retail lending to grow their books. As per the SBI chief MS Arundhathi Bhattacharya, there is still a lot of unmet demand for retail credit in the country, which can be tapped in a secured manner. According to her, this can be accomplished by widely accessing the data repository and analytics.

The retail lending in India is reportedly way less than other developing nations in the same bracket. It is said to be even less than ten per cent of the GDP.

Also, the future of the banking business is said to depend a lot on entrepreneurial partnerships between banks and financial technologies. There are many upcoming financial technology companies who can be provided a readymade customer base by the banks to help to leapfrog in terms of technology and solutions for the banking customers.

The future rate control by the RBI will be a function of credit demand and liquidity. Demand will play a significant role in bringing down interest rates. A major anti-inflation stance coupled with liquidity management or cash liquidity in the banking system is on the cards and will be key for sustainable rate cuts.

Future rate cuts are believed to depend on how inflation shapes up in line with the central bank's policy trajectory, devised by the Monetary Policy Committee of RBI. The expectation among bankers is that a cut of 25 bps or a quarter percent in rates is most likely by March 2017.

Writer

K Srinivasan K Srinivasan @krishsri59

The author is a GST reader and writes on macroeconomics and indirect tax laws.

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