Page 10 - Banking Finance April 2023

RBI CORNER

The expectations of Nomura analysts said. Ghosh said he does not see an end "With the threat of El Nino on the rise,
Sonal Varma and Aurodeep Nandi are to the rate hike cycle of the Fed in the food inflation could be a spoil-sport
against the consensus of a 25 basis short-term, which makes a case for the and, thus, add to the risk."
point rate increase in FY24's first meet- RBI to contemplate about decoupling.
To be sure, lenders have already raised
ing of the monetary policy committee
"My point is can we match the Fed loan costs for borrowers after the cen-
on April 3-6.
stroke by stroke? At some point of time tral bank began raising rates early last
The brokerage expects headline infla- we need to pause and think whether summer to prevent inflation from ac-
tion to fall to 5.5% in March, with core the impact of the earlier rate hikes (by celerating.
easing to 5.7%. Beyond March, it ex- the RBI) has percolated down into the
pects a material inflection lower (to system... I don't see any end to the
Banks may hike MCLR by
below 5%) in both headline and core Fed's cycle soon, it could be three or
150 bps in FY24 amid tight
inflation, with both likely to average more rate hikes going ahead," Ghosh
4.9% in FY24. said. liquidity: Report
"Favourable base effect will play some In January 2023, the country's inflation Commercial banks are likely to increase
role, but we also expect continued jumped up to 6.52 per cent, above the the marginal cost of funds based lend-
moderation in the underlying momen- RBI's tolerance level of 6 percent. ing rate (MCLR) by 100-150 basis
tum, due to weaker growth," Varma points (bp) in the next financial year
This came after inflation remaining
said. (FY24) amid a rise in the cost of money
above 6 per cent for 10 out of twelve
and tight liquidity. The transmission of
Kotak Institutional Equities, on the months in 2022. Most economists be-
monetary policy in the banking system
other hand, sees limited space for the lieve that the RBI will hike rates to
could intensify in FY24, according to
RBI to ignore the above 6% inflation soften inflation, which in recent times
India Ratings and Research (Ind-Ra).
prints and continue to expect the repo has been spurred by food prices.
rate to be hiked by a 25 bps hike in the Responding to the repo rate rising since
April meeting. Increased funding costs May 2022, banks have raised median
MCLR (of one-year duration) by 120
"Inflation has stayed above 6% for two could impact lenders'
basis points between May 2022-Febru-
consecutive months. Average inflation
profit margins ary 2023, Reserve Bank of India (RBI)
for 4QFY23 will likely be at 6.2%-50 bps
Profit margins at Indian banks and non- data showed. The RBI has hiked policy
higher than RBI's estimate. It will be
bank lenders could narrow as they ab- repo rate by 250 basis points in stages
difficult for the RBI to ignore these in-
sorb a part of the staggered increases to 6.5 per cent in February 2023.
flation prints (even with global finan-
in funding costs to ensure credit de-
cial markets in some turmoil) after MCLR-linked loans are mostly given to
mand remains resilient through the
being hawkish in the last policy," Kotak corporate and business establish-
cycle of rate hardening.
said. ments. These loans had 46.5 per cent
With the Reserve Bank of India (RBI) share in outstanding floating rate ru-
RBI should pause, think raising policy rates to restrain inflation, pee loans as of September 2022, ac-
lenders believe passing on costs fully cording to RBI data.
about decoupling from
could hurt credit demand.
Ind-Ra said the drawdown by banks
Fed: Soumya Kanti Ghosh "The RBI in the February MPC meet- from reverse repo in FY23 was to the
The RBI should "pause and think" if it ing expectedly raised the repo rate by tune of Rs five trillion. This has enabled
can continue mirroring the US Federal 25 basis points, while higher inflation banks to address a surge in the gap
Reserve "stroke by stroke" in terms of print in January CPI poses risk of an- between incremental credit and de-
rate hikes or decouple from the Ameri- other hike if inflationary expectations posit, and this will not be available in
can central bank, SBI group chief eco- do not ease," said Anand Dama, ana- FY24. Therefore, MCLR will show a sig-
nomic adviser Soumya Kanti Ghosh lyst with brokerage Emkay Global. nificant rise.

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