Bankers have asked the central bank for a cut in both repo and CRR in the upcoming policy review

Mumbai: Leading bankers met top brass of the Reserve Bank of India (RBI), impressing upon them the need to shift focus of monetary policy to growth and sought reduction in the repo rate and the cash reserve ratio (CRR) by 0.5%, reports PTI.

“While inflation concerns remain, growth is a bigger concern... so, while we understand the issues related to inflation at this point of time, it was our recommendation that there should be a rate cut so that growth comes first,” HDFC Bank's MD Aditya Puri told reporters.

Speaking after the customary pre-policy meeting with RBI brass, he said that bankers have asked for a cut in both repo (rate at which the RBI lends to banks) and CRR—the portion of deposits banks have to mandatorily park with the central bank—in the upcoming policy review.

CRR stands at 4.25%. Repo rate is at 8%.

“The bankers have urged the RBI to reduce interest rates by 50 basis points at least. Even the CRR should come down by 25-50 basis points,” Indian Banks Association (IBA) chief executive K Ramakrishnan said.

One basis point is equal to 0.01%.

The body’s chairman and CMD of Punjab National Bank, KR Kamath said the banks would reduce interest rates if RBI cuts policy rates in the coming policy.

“If the rate of interest is reduced, probably the transmission will happen. Bankers have already been saying that transmission will happen if there is a rate cut,” Kamath said.

He also said reduction in rates would help in increase in investment, which would boost credit growth.

Ramakrishnan said if both these rates are lowered, it will send a positive signal to market.

“If both these things (repo and a CRR cut) happen, transmission will happen and it will be a good sign to the market that growth is going to happen in a big way,” he said.

The likelihood of a rate cut became strong with manufacturing growth remaining in the negative terrain and WPI-based headline inflation hitting a three-year low at 7.18% in December.

Moreover, RBI governor D Subbarao had in the October policy as well as at the subsequent mid-quarter review had hinted at a rate cut in the January policy.

On the poor deposit growth, the IBA chief executive said bankers raised concerns regarding sluggish deposit growth along with low credit uptake. “Sluggish deposit growth is a matter of concern to the bankers. Credit is also not picking up the way it should and hovering around 8% now.”

According to Ramakrishnan, both bankers and the central bank are concerned about rising bad assets in the system.

About the recent suggestion to pay interest on current account, Ramakrishnan said there was a passing mention regarding this with the apex bank at the meeting.