The Reserve Bank of India’s Monetary Policy Committee on Thursday kept the key repo rate unchanged at 5.15 percent due to higher inflation while maintaining an ‘accommodative’ stance over sluggish economic growth.

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The central bank revised the inflation forecast but kept GDP growth projections unchanged.

The RBI announced revised Liquidity Management Framework, incentivising bank credit to specific sectors, external benchmarking of new floating rate loans by banks to medium enterprises and many others.

It also extended the Date of Commencement of Commercial Operations (DCCO) of project loans for commercial real estate by a year without downgrading asset classification.

Here is how industry experts commented on the key policy decisions of the RBI.

“The steps taken by the governor have to be complimented for the MSME sector. Hopefully, this will revive credit growth. The important thing is not only the demand for money but also the fact that banks should now be more incentivized into lending money to the MSME sector for which the CRR cut would be good,” said Keki Mistry, vice-chairman, and CEO, HDFC.

SS Mallikarjuna Rao of PNB said, “It is a very positive document and support from the RBI. The CRR not to be maintained on the additional lending on auto, housing, and MSME will give an advantage to the banker. I am sure the credit growth will take an impetus with this decision.”

“The big announcement has been in terms of the CRR relief that has been given for incremental lending to auto, housing, and the MSMEs. So any incremental lending over January 31, 2020, upto July 31, 2020, will be exempted from CRR,” said PK Gupta, MD, SBI.

Kamal K Mahajan of Bank of Baroda added that liquidity adjustment facility (LAF) overnight versus 14 days was planned long back.

“Looking at the liquidity available and excess SLR available with industry, these 14 days would not make much of a change. The only thing is that ALMs would be better and perhaps overnight amounts were very high, which is a better thing. The CRR cut is very welcomed, this will bring down the cost of operations by 25 basis points to that,” he added.

Deutsche Bank’s Kaushik Das said, “I think rates can still go lower, but what RBI has done today it has created an enabling kind of situation so that MSME and all these sectors can grow at a faster pace, credit growth can be a little higher than what we have had in the past.”

When asked about the relief on CRR, Rajeev Mohan of Kotak Mahindra Bank said, “It’s a refreshing change from the past. The RBI has now given an outcome linked cost intervention. So it should give a positive outcome over a period of time. Of course, we will have to look into the details of the scheme as and when it comes.”

“The other piece which I like is long-term repo. My sense is it will push the anchor from overnight currently to one year and three years – that should give room for rates in the market to come down a little,” he added.

Dhiraj Relli, MD & CEO, HDFC Securities said, "Reliefs to MSMEs and real estate sector are welcome and will positively impact the valuations of lending companies and real estate companies. As far as the stock markets are concerned, the outcome is more or less in line with expectations and the markets will keep discounting other evolving developments."

Ananth Narayan of S. P. Jain Institute of Management and Research (SPJIMR) said, “It is a very big positive for the non-banking financial companies (NBFC) sector. It is a combination of forbearance in terms of recognition of delayed loans and classification and also a fillip to fresh lending - if you are saying that cash reserve ratio (CRR) will be actually exempt for fresh loans, it is also a fillip to fresh lending.”

Speaking about the incentives for the real estate sector, Ajay Srivastava, CEO of Dimensions Corporate Finance Services said, “For the first time a very constructive framework is put together which is a great pointer to how the government and the RBI are now looking at the economy and the industry. I think it is a great paradigm shift. The real estate sector which I presume would follow suite in terms of the relief that might come for individuals who are stuck in the housing projects. EMI relief, if it comes, will be a great relief to the market.”

Talking about changes in repo borrowing by banks, Neeraj Gambhir of Axis Bank said, “On the policy while - on the face of it's it is a status quo policy, but there is enough in it to push the rates down across the board. The repo rate framework and the LAF framework is one such change.”

“Essentially, it puts a lot of burden on the banks to manage their excess liquidity during the 14 days window. It has already triggered a significant rally in the short term bond market. We have seen about 15 basis point lowering of the yields of papers up to 2-3 year maturity. It is because of the expectation that with this kind of surfeit of liquidity in the system and Reserve Bank moving to a sort of a fortnightly system of LAF management there will be more demand for the short term highly liquid papers,” Gambhir added.

On MSMEs, Niranjan Rajadhyaksha, Research Director and Senior Fellow at IDFC Institute said, “The RBI seems to have followed a two-pronged strategy here. Given the high inflation, there is no space for using the interest rate and repo rate to stimulate the economy. So, one prong has been to keep a watch on inflation by maintaining rates at a steady level and try to stimulate demand through all these regulatory and liquidity measures. So, in a way, it is a very interesting mix they have done here.”

First Published:Feb 6, 2020 2:14 PM IST