NEW DELHI: As the Reserve Bank of India (RBI) surprisingly cut the statutory liquidity ratio (SLR) in the monetary policy review yesterday, the financial institutions are expected to bring downward revision opt for retail lending rates.
The SLR cut has potential to strengthen liquidity in the system by close to Rs 62,000 crore. It has to be witnessed in the context of deposit growth impacting credit expansion and also the requirement for development in capacity among banks for handling pressure.
Banks are not likely to lower the short-term deposits rates as it is facing competition from liquid schemes of mutual funds but the long-term deposit rates can be reviewed in regard to the SLR cut. The central bank has not brought any revision in policy rates, repo rate (the interest rate at which banks borrow funds from RBI) and reverse repo rate (the interest rate at which banks park surplus funds with RBI) at 8% and 7%, respectively.
Moreover, RBI Governor D Subbarao stated that the SLR cut will help the banks to channel credit to the main sectors and also handle effectively the high-cost bulk deposits.