RBI in its annual monetary policy on Tuesday reduced the short-term lending (repo) and borrowing (reverse repo) rates by 25 basis points to 3.25% and 4.75% respectively and this has been cheered by markets and industry.
RBI said that it expects FY10 GDP growth to be at 6% The Central bank in its annual policy review statement said that the credit growth in FY 2010 could touch 20% while the deposit growth is estimated at 18%. On the top of this, it has said that there is enough room for the banks to cut lending rates and has asked banks to review their benchmark prime lending rates (BPLR). However, a committee has now been formed to review the BPLR system.
Moreover, RBI has also gave emphasis on the need for maintaining the credit quality through the downturn. It has warned that the slowdown could lead to an increase in the non performing loans for banks. The banks have been reluctant to lend unsecured loans to consumers in the last 2-3 quarters.
"Like all emerging economies, India too has been impacted by the crisis, and by much more than what was expected earlier", the RBI statement said. The markets seem to have welcomed the move by RBI as the Sensex gained nearly 250 points or 2% from the low of the day. The banking stocks also gained and the BSE bank index gained over 2% after the RBI announcements.
The private banks have not followed the government banks, focusing on profitability.
Housing Finance company HDFC''s Vice Chairman and MD Keki Mistry welcomed the RBI move. "Risk aversion has crept into the system," he said, and also added that if the cost of funds come down, the company would look at the option to pass on the benefits of lower rates to its customers.
RBI''s macro economic policy review had said that the economic indicators continued to look weak and the business confidence was weakening further. That has led to some expectations that RBI may go for an aggressive cut in the reverse repo rate.
After the repo rate and reverse repo rate cut by RBI in March, the government-run banks had cut interest rates.
RBI said that it expects FY10 GDP growth to be at 6% The Central bank in its annual policy review statement said that the credit growth in FY 2010 could touch 20% while the deposit growth is estimated at 18%. On the top of this, it has said that there is enough room for the banks to cut lending rates and has asked banks to review their benchmark prime lending rates (BPLR). However, a committee has now been formed to review the BPLR system.
Moreover, RBI has also gave emphasis on the need for maintaining the credit quality through the downturn. It has warned that the slowdown could lead to an increase in the non performing loans for banks. The banks have been reluctant to lend unsecured loans to consumers in the last 2-3 quarters.
"Like all emerging economies, India too has been impacted by the crisis, and by much more than what was expected earlier", the RBI statement said. The markets seem to have welcomed the move by RBI as the Sensex gained nearly 250 points or 2% from the low of the day. The banking stocks also gained and the BSE bank index gained over 2% after the RBI announcements.
The private banks have not followed the government banks, focusing on profitability.
Housing Finance company HDFC''s Vice Chairman and MD Keki Mistry welcomed the RBI move. "Risk aversion has crept into the system," he said, and also added that if the cost of funds come down, the company would look at the option to pass on the benefits of lower rates to its customers.
RBI''s macro economic policy review had said that the economic indicators continued to look weak and the business confidence was weakening further. That has led to some expectations that RBI may go for an aggressive cut in the reverse repo rate.
After the repo rate and reverse repo rate cut by RBI in March, the government-run banks had cut interest rates.
