After easing liquidity by cutting down the key policy rates, RBI governor, D Subbarao decides to meet the chiefs of commercial banks in order to discuss the ongoing scenario in financial market.
Chiefs of a few large commercial banks are expected to meet the governor on November 28th in Mumbai. In a message to CEOs of the banks, RBI stated that meeting will be held to discuss on matters related to "support to small and medium enterprises (SME), support to exporters and the liquidity position in the system."
Recently Subbarao had met the chairmen of some public sector banks to talk about the cash flow in the country. A chief at the meeting said, "The governor wanted information on liquidity, whether it is sufficient. He also made inquiries about the problems faced by SMEs and exporters." Bankers agree that the steps taken by the apex body has definitely eased liquidity in the system but credit flow has not increased at the same proportion. "However, credit has not picked up as expected. As a result, most banks are sitting on surplus cash," said a CEO from a large bank.
It is expected that there will be a further cut in policy rates by RBI following the dipping inflation rate but when asked about the same, Subbarao said, "We are hearing what everyone is saying and the decision will be taken at an appropriate time." However some bankers also feel that currently there is surplus liquidity and RBI may wait before cutting down the policy rates.
RBI has already unlocked Rs 2,750 billion during the past few weeks through cuts in CRR. The excess liquidity in the system was also noted in the reverse repo auction where an interest rate 6% was offered for the overnight money that banks deposit under this window. On November 20th, commercial banks parked Rs 27,000 crore with the RBI under the reverse-repo window.
The surplus liquidity has also forced banks to disconnect their special deposit scheme that offer interest rate of around 10.5%. Most banks have announced to withdraw their deposits with special tenure from the market in the beginning of next month. Also there are apprehensions involving the credit flow of SMEs and exporters. It is complained that small businessmen and exporters are charged high interest rates where as high profile corporate are able to negotiate on the interest rates.
No matter how many measures have been taken by the RBI in the past, the liquidity condition and high interest rates still seem to be a cause of concern.