RBI Lending Window
Exactly matching to the funding requirement for the various upcoming projects, the Reserve Bank of India (RBI) in a recent move has slashed the statutory liquidity ratio (SLR), which is the proportion of deposits banks are required to park in government securities, while maintaining a status quo on the repo rate, the key lending rate of the central bank. In its latest move the central bank has clearly sent a signal to the government to not pause fiscal rectitude, even as it opened up more funds to the tune of about Rs. 40,000cr for banks to lend to the industry to meet its financing requirements, said an expert, adding that slashing SLR by 0.50 percentage points to 22.5%, is in fact the lowest level since 1964. In its scheme of things, the RBI is now more willing to support growth provided the government delivers on food supply management and fiscal consolidation, said head of economics research, Asia Pacific (ex-Japan), Royal Bank of Scotland, Sanjay Mathu, adding that the upcoming Union Budget will be a litmus test on this count. Swift action on the part of the government to tame food inflation and commitment to fiscal discipline will provide the RBI the elbow room for a pro-growth monetary stance, credit rating and research firm Crisil said in its recent research report.

In the emerging scenario on the monetary front, the RBI expects credit need to increase, therefore, has injected more funds for banks to lend more than their existing abilities. But it remains to be seen to what extent the SLR cut will enhance bank lending to companies given that lenders are currently parking funds with government bonds more than what is statutorily required. The SLR of banks at 28.5% is currently met well above the stipulated rate of 23%, as such, the reduction to 22.5% is not expected to make a significant difference in bank lending, chief economist at credit rating and research firm Care Ratings, Madan Sabnavis, said. Analysts observed that there is a definite change in the RBI's phraseology indicating a stronger pro-growth stance, as opposed to a dogged focus on price control. Commenting on the development, chief economist, Kotak Mahindra Bank, Indranil Pan, said that the policy could be seen as being a bit on the dovish side than earlier as the key change in wordings of this policy statement is on the guidance on inflation and is now seen as more balanced in terms of risks.