MUMBAI Dec 7 India's bankers welcomed the
central bank's decision to reverse an order that forced them to
surrender all their deposits, saying it would allow them to
lower their lending rates even after interest rates were kept
unchanged on Wednesday.
Lenders in Asia's third-largest economy have been flush with
billions of dollars of liquidity in the past month as people
rushed to deposit higher value bank notes that had been rendered
worthless by the government last month.
But the RBI, fearing a destabilising impact on debt markets,
had ordered banks to place all of those deposits under the
central bank's cash reserve ratio (CRR).
The RBI on Wednesday said it would now reverse that CRR hike
starting on Dec. 10 after the government had announced it would
sell special bonds to absorb any extra liquidity.
Canara Bank, the fifth-biggest state-run lender by
assets, lowered its main lending rates by 15 basis points on
Wednesday, even after the RBI on Wednesday kept the repo rate
unchanged at 6.25 percent, surprising markets that had bet on a
25 basis point rate cut.
State Bank of India Chairman Arundhati Bhattacharya said on
Wednesday she welcomed the reversal on the CRR hike, even as she
called the RBI decision to keep interest rates unchanged a
"Once this burden is taken away, we'll definitely be seeing
some kind of lowering of rates going forward," Bhattacharya said
on the CNBC TV18 channel, referring to the CRR withdrawal.
The lender, which accounts for about a fifth of India's
banking assets, had kept its lending rates unchanged in its
monthly review for December.
The RBI has cut rates by 175 basis points since the start of
2015, but lenders have lowered their lending rates by a little
more than 100 basis points, sparking concerns about slow
monetary policy transmission.
However, banks have found an unexpected boon in the
country's decision to abolish 500 and 1,000 rupees notes, which
had been intended to crack down on counterfeiting and the
country's "shadow economy".
Chanda Kochhar, chief executive of top private sector lender
ICICI Bank, said on Wednesday she also expected
lending and deposit rates to continue to fall.
Ahead of the RBI policy decision, Bank of Baroda,
the second-biggest state-run lender, lowered its one-year MCLR
rate by 20 basis points.
(Reporting by Devidutta Tripathy; editing by Jason Neely)