UNCHANGED RATES BY RBI LEAVES A SETBACK FOR THE SECTOR

The Reserve Bank of India in its bi-monthly policy review, has decided to maintain the status
quo by keeping the key rates unchanged. In the first monetary policy review of this financial year
RBI Governor Mr. Raghuram Rajan leaves interest rates, Statuary liquidity ratio (SLR) and Cash
reserve ratio (CRR) unchanged. RBI had already cut the interest rates twice this year, first in
January and then March. On March 4, 2015, RBI lowered its policy rate to 7.5 % by 25 basis
points, after a similar drop on January 15, 2015.
The decision of RBI to keep the rates unchanged was disappointing for the market. In effect
Repo rate, the rate at which RBI lends to commercial banks remains to be 7.5% and Cash
Reserve Ratio (CRR), the percentage of funds to be kept with RBI continues to be 4%. The
Statuary Liquidity ratio (SLR), the percentage of net deposits to be kept in liquid assets also
remains to be unchanged at 21.5%, respectively. Consequently the reverse repo rate continues to
be at 6.5%, and the Marginal Standing Facility (MSF) rate and the Bank Rate at 8.5%. The RBI
Governor, Mr. Raghuram Rajan projected a CPI inflation of 6% for March 2016 and 4.5% for
March 2018. This monetary policy is expected to bring economic growth for India at 5.8% by the
end of 2015.
Though, a further reduction in the rates was very much hoped-for requirement of market. The
drop in rates was expected to benefit the banks. This in turn, would have benefitted the
borrowers. A decrease in rates would have definitely reduced a descent amount of interest rates
for loans too, thereby reducing the burden on common mans pocket while asking for funds.
Despite RBIs move to cut rates twice this year, banks have refrained from lowering their rates.
Regardless of the fact that interest rates have already been reduced twice, banks have not made
any cut in the interest rates for the borrowers. General masses are not passed down the rate cut
which is supposed to be done as per RBIs policy. Here in such a case, Government should take
steps so that interest rates are reduced by lending banks and benefits should be passed down the
hierarchy too.
SBI chairperson Arundhati Bhattacharya had said that RBI should bring down CRR instead of
repo rate. She said that reducing CRR would bring down cost of funds and the benefit will reach
borrowers. This is in fact a notable point that a cut in repo rate would not be that effective but a
drop in CRR will help banks to reduce the lending rates; as with the reduced CRR they can hold
back more funds with them, instead of keeping a large percentage of funds as security with RBI.
Thus, a cut in CRR would have been a good move by RBI instead of leaving it unchanged.
Mr. Kushagr Ansal, Director, Ansal Housing, says, There is no rate cut in the latest monetary
policy by RBI, unlike the last two policies. A parallel cut in repo rate and CRR would have
brought a win-win situation for the banks. They would have the interest rates reduced and could

keep back additional funds. This would have increased their borrowing and lending capacity as
well thereby creating a wave of positive sentiments in the market.
Mr. Rupesh Gupta, Director, JM Housing says, As our economy is developing it is very
important that RBI brings down the rates so that the banks may carry out their activities
smoothly. The reduction in rates would ultimately be advantageous to the customers for the
reason that if banks have reduced rates, the same will apply to the end-borrowers too and real
estate market will have a pool of demand to deal with.
Mr. Deepak Kapoor, Director, Gulshan Homz said, A fall in rates was very much expected
from the apex body. Reduction in rates was much needed so as to help the customers decrease
burden on them. With inflation and fiscal deficit coming under control, a cut in key rate would
have helped the real estate sector greatly as customers would have got a good reason to invest
here with lesser pressure on their pockets.
Mr. Mahipal Singh Raghav, CMD, MMR Group says, Decrease in previous rates by RBI
brought a ray of hope for further reduction in rates this time too. However, the rates are
unchanged. Reduction in rates might have conveyed relief to banks along with general masses.
However, we hope to get these rates reduced by RBI in their next monetary policy so that market
gets back on track and people can invest with lowered EMIs.
Mr. Rajesh Goyal, MD, RG Group said, Cut in the policy rates is need of the hour and was
highly anticipated. The cut in CRR would have increased the lending capacity of banks,
ultimately reducing the weight on publics pocket. The reduction could have brought about many
positive changes and would have acted as a catalyst in our economys growth.
Mr. Naveen Goel, MD, Radhey Krishna Group said, The monetary policy of RBI should be
practical, it is not only the bank which is affected by the policy but ultimately it affects the end
borrowers. We expect a further reduction in the repo rate and especially in CRR in the next
monetary policy by RBI so that the banks can have a better lending capacity.