Every box in our wishlist is ticked says bankers on RBI’s rate cut and other moves

• RBI Governor Shaktikanta Das’ announcements are being termed as a ‘bazooka’ after he cut base interest rates by 0.75%
• “The CRR cut should release ₹4,000-4,500 crore for our bank,” said Raj Kiran Rai MD and CEO of Union Bank.
• “Our default fears have been allayed,” said A K Das, MD of Bank Of India.
• “We will transfer the entire 75 basis point rate cut directly to our borrowers,” said Mallikarjun Rao, CEO of Punjab National Bank.
  

Indian banks can now lend more money at cheaper rates and will be able to stress less about recovery. RBI Governor Shaktikanta Das’ announcements are being termed as a ‘bazooka’ after he cut base interest rates by 0.75%.

He also said that banks can now maintain ‘lesser amounts’ as reserves as it relaxed the cash reserve ratio (CRR) norms.

“The CRR cut should release ₹4,000-4,500 crore for our bank. There is a lot of demand for loans and we had sufficient liquidity to provide them to mutual funds and the private sector. This announcement gives further relief and I can buy a lot of bonds now as the yields are now good,” said Raj Kiran Rai MD and CEO of Union Bank who said that every box in his wishlist has been ticked.

Neither corporates nor individuals have to pay EMIs for the next three months. “Our default fears have been allayed,” said A K Das, MD of Bank Of India. A lot of businesses which were stressed before the Covid-19 led shutdown have been falling into the red zone, and has been stressing bankers.

However, Das paused the clock on all these troubles so that bankers can go back to lending to those who need it the most. “We are stretching imagination too far. This is a momentary respite for corporate and bankers. We can re-look at it 3-6 months down the line,” said A K Das.

Interest rate for loans will be cheaper

Shaktikanta Das is pushing banks to lend more as most of them have been parking funds with the RBI. He cut the interest rate that RBI pays for these parked funds by 90 basis points to what is called a reverse repo.

“This is a bazooka for the markets. While a 75 basis point rate cut has been announced, it effectively translates to a 100 basis point cut for the market with changes in reverse repo,” said Sajjid Chinnoy, chief economist at JP Morgan.

A few elated bankers also said that they will pass on all the benefit of the rate cut just announced to their borrowers. It means that the actual cost of borrowing will go down for individuals and corporate alike. For the last one year, the RBI was pushing and warning bankers to pass on rate cut benefits to their clients with little success. But CRR cut and the fact that the regulator made it easy for banks to invest in bonds have given the much needed fillip.

“We will transfer the 75 basis point rate cut directly to our borrowers. These measures will help greatly,” said Mallikarjun Rao, CEO of Punjab National Bank.

SEE ALSO

WATCH RBI Governor Shaktikanta Das unveil $50 billion ammunition to keep the Indian economy breathing amidst coronavirus lockdown

Lockdown package: Poor Indian women given cash, grain, pulses, cooking gas to feed their families