The week's Credit Policy Announcement
The overall Credit Growth has shrunk to 16% today and Reverse Repos continue to attract more than Rs 1 Trillion daily ($20 billion). Overnight rates reign low. Foreign Banks and Private Sector counterparts like ICICI Bank have virtually stopped all lending to the real estate sector, while the Indian currency is expected to go into an upswing against the dollar. However, we have already cut CRR considerably and also with the Government’s own INR 5 trillion (incl states and spl borrowings) borrowing program ($ 100 billion) liquidity crisis would not result very soon.
However the RBI policy is a key tool to stimulate market lending and while deposit rates have already come down, banks are still cagey to lend. PSBs will play an important part in easing the credit situation. The Credit policy, however, cannot bring in Foreign investors who continue to invest in portfolio monies rather than FDI and MNC banks have additionally opened a route of lending to NBFCs to step a little away from market default. On the whole, everyone has taken their part of the pie and have made it clear that they are not part of the nation building role that RBI has. Tough luck as always. I would have gone ahead with reducing SLR requirements as reserves would remain robust, meander over to the Euro instead of the Dollar ( faster hopefully) and banks would have really got some urgency to lend to corporates even after flooding the interbank market with new securities as being released to continue market reforms. But of course, Mr Subbarao is firmly in saddle, India has got great reserves for the coming hyperinflation from the current bout of OILY deflation and the continuing rate of M3 at near over 20% is not a concern. Mr Subbarao may however be a little depressed by the prospect of monetization as the deficit , already at 11% continues to increase and the hyper inflation above still not going away for conservative strategies..but then this is a free market!
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