RBI Monetary Policy: SLR cut which may be a bitter sweet pill, should release liquidity to banks, says Mahindra Group CFO

The Reserve Bank of India (RBI) decided to maintain a status quo in fifth bi-monthlu monetary policy of India, keeping repo rate unchanged at 6.50%. Consequently, the reverse repo rate under the LAF remains at 6.25%, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.In December 2018 policy, the limelight was stolen by a series of measures introduced to ensure banks credit growth. A key development by RBI packs some really good news for borrowers! RBI had stated several times, that banks are not passing the benefits of reductions in RBI policy repo rate to borrowers. Well, now banks are trapped, and RBI has brought in a major relief for borrowers.

One of the key development made by RBI was to align the SLR with the LCR requirement, it is proposed to reduce the SLR by 25 basis points every calendar quarter until the SLR reaches 18 per cent of NDTL. The first reduction of 25 basis points will take effect in the quarter commencing January 2019.

As per the existing road map, scheduled commercial banks have to reach the minimum Liquidity Coverage Ratio (LCR) of 100 per cent by January 1, 2019. 

Presently, Statutory Liquidity Ratio (SLR) is 19.5 per cent of Net Demand and Time Liabilities (NDTL). 

V S Parthasarathy, Mahindra Group CFO believes that SLR cut may have been a bitter sweet pill. However, he is very optimistic on this RBI development.  

Parthasarathy says, "The SLR cut which may be a bitter sweet pill, should release liquidity into the banking system. Linking retail & MSME loans to market benchmarks will bring transparency of credit at the grassroots level, which is a very welcome step.”

Talking about the overall policy, Parthasarathy  adds, "Data is the Oil for the Digital economy while for the RBI Oil is the Data on which monetary policy is based ! The decline in Crude prices & benign inflation expectations warranted a “status quo”, which was rightly delivered by the RBI. While there was a scope to change the policy stance to “neutral”, the RBI decided to continue with “calibrated tightening”  signaling policy consistency & continuity."

 With the Rupee and Current Account Deficit under control,Parthasarathy says, "the need of the hour was the restoration of confidence in the financial sector to spur growth."

In Parthasarathy views,the RBI has come out with some well thought out measures to enhance liquidity to the NBFC sector.