Mumbai: For the fourth time in a row, RBI kept key interest rates unchanged on Tuesday maintaining that it will not cut them unless inflation moderates to anticipated levels, disappointing borrowers and the industry in this festive season.
Reserve Bank Governor Raghuram Rajan hoped that inflation will moderate to acceptable level of 6 percent by January 2016 and maintained that the GDP growth in the current fiscal will be 5.5 percent, same as projected earlier.
While the unchanged policy will not result in any relief to borrowers in the festive season, RBI relaxed the 'know your customer' norms by allowing self-certification of documents needed for opening bank accounts.
The central bank is also in the process of modifying the definition of "wilful defaulters" so as to bring the directors of defaulting companies within its ambit and announced setting up of a Central Fraud Registry to check frauds.
The short-term lending rate (repo) rate will remain at 8 percent, and the cash reserve requirement of banks at 4 per cent. The statutory liquidity ratio (SLR) has also been retained at 22 percent.
In the bi-monthly monetary policy review, Rajan said: "The future policy stance will be influenced by the RBI's projections of inflation relative to the medium term objective of 6 percent by January 2016, while being contingent on incoming data."
Commenting on the RBI policy, Financial Services Secretary G S Sandhu said the central bank understands the needs of market and would cut interest rate at the right time.
"RBI is fully understanding the issue. It fully understands needs and expectation of markets, so they will take a view (on cutting policy rates) when the time is right," he said.
Industry said however that RBI has missed an opportunity to cut interest rate at a time when the WPI inflation has fallen to a 5 year low of 3.74 percent and oil prices have softened to USD 94 per barrel.
Explaining the rationale for status quo policy, Rajan said that although WPI inflation has ebbed to levels consistent with 8 percent inflation by January 2015, "there are risks from food price shocks as the full effects of the monsoon's passage unfold, and from geo-political developments that could materialise rapidly".
"The RBI move to maintain status-quo was as per market expectations. The policy statement reinforces that any adjustments in repo rate will be data dependent in future... The creation of a central repository on frauds will enable banks to have an effective borrower credit history," SBI Chairperson Arundhati Bhattacharya said.
ICICI Bank MD & CEO Chanda Kochhar said: "Today's policy takes forward the development of the new monetary policy framework and the approach to banking system development, while ensuring that global requirements are implemented in a non-disruptive manner and factoring in the Indian scenario".
Industry body CII said the twin deficits and core inflation have been trending downwards, while the industrial production has been muted.
"This could have been a good opportunity for the RBI to reduce rates," said CII Director General Chandrajit Banerjee.
On inflation, Rajan said: "The balance of risks is still to the upside, though somewhat lower than in the last policy statement. This continues to warrant policy preparedness to contain pressures if the risks materialise."
He said the fall in crude prices and relative stability in the foreign exchange contains some of the upside risks to inflation.
On growth, Rajan said second and third quarter growth will be lower than the first quarter, but the fourth quarter looks more promising. The RBI projects GDP to grow by 6.3 percent in 2015-16 fiscal.
Rajan said RBI is in the process of modifying the definition of "wilful defaulters" so as to bring the directors of defaulting companies under its ambit.
"The (Calcutta High) Court had some questions about whether all directors could be declared wilful defaulters and we have looked at that. We are in the process of modifying the definition so that the directors should be seen as culpable in the sense of actively participating or being grossly negligent of wilful default," Rajan said.
According to the current definition, a wilful defaulter is somebody who has essentially not used the fund for the purpose it has been borrowed or when he has not repaid when he can do so; when he has siphoned off the funds or when he disposed of the assets pledged for availing of loan without the bank's knowledge.
Recently, United Bank of India declared Kingfisher Airlines as well as some three of its directors as wilful defaulters. The decision of the single bench, that accepted the bank's position, was later stayed by a division of the Calcutta High Court last week.
Rajan said the final guidelines on small banks and payments banks will be issued by November-end, while the final norms with regard to the changes in the regulatory framework for NBFCs will be introduced by October-end.
RBI has reduced the liquidity provided under the export credit refinance (ECR) facility from 32 percent of eligible export credit outstanding to 15 percent with effect from October 10.
It has decided to continued providing liquidity under overnight repo at 0.25 percent at the LAF repo rate and liquidity under 7-day and 14-day term repos of up to 0.75 percent through auctions.
