The decision of RBI to lower rates by 25 basis points (bps) have suprised many. Here is what rating agency ICRA thinks on the same ...
ICRA Spokesperson Mr. Anil Gupta, VP and Sector Head, Financial Sector ratings shares his views on RBI Policy and its implication on banks
Transmission of cut in policy rates in banks' lending rates may be incomplete and delayed given the slow incremental build-up in their deposits. It may be challenging for banks to push credit growth without fast-pacing their deposit base, which may require hiking deposit rates and that may be difficult in a rate cut cycle
The revision in the definition of bulk deposits as single rupee deposits to Rs 2 crore from 1 crore earlier will reduce ability to banks to offer differentiated rates on deposits higher than Rs 1 crore but lower than Rs 2 crore. This can affect their deposit mobilization, however it will be positive as it will lower their cost of funds
Removal of restriction of FPI investment limit upto 20% in corporate debt of a single corporate is positive for attracting FPI debt flows as well as the borrowers as many of smaller borrowers have limited investor base and this will enable these borrowers to raise funding from its available set of investors. However RBI can also relax other FPI limits related to investments cap of 50% by single FPI in single issue or holding 20% of corporate debt with 1 year maturity to attract FPI debt flows
Though RBI has Lowered the inflation projections for 2019, which opens up the room for further cuts in policy rates, however the actual actions will remain data dependent.
ICRA Sector head AM Karthik, Assistant Vice President, shares his views on RBI policy and its implications on NBFC sector
Reduction in risk weights for NBFCs is expected to free up the equity capital for banks against their exposures to NBFCs, which the banks can use for incremental credit growth or improvement in their capital ratios. While this can also result in reduced borrowing rates and incremental credit supply for NBFCs, however this will depend on banks willingness to do so
Banks' exposure to NBFCs is estimated at Rs 5.7 lakh crore of which exposure to AFCs, IFCs and IDFs is already risk weighted based on their ratings. Assuming a 50% exposure of banks' exposure to NBFCs in other category and a 50% reduction in their risk-weights, the capital requirements of banks against these exposure can reduce by ~Rs 12,500 crore, which in-turn can be used for incremental lending or improvement their their capital ratios. This is equivalent to a 0.125% improvement in capital adequacy ratios for banks