RBI's status quo on rates disappointing for markets: VG Kannan, SBI

In a chat with ET Now, VG Kannan, MD & Group Executive (Associates & Subsidiaries), SBI, talks about RBI's latest credit policy. Excerpts:

ET Now: What are your initial thoughts on the RBI policy?

VG Kannan: I think this policy is more or less on expected lines. But the markets — especially the bond markets — are a bit disappointed. The yields had been going up in the last few days.

There could perhaps be more action after the policy by way of OMOs or some such thing. But as banks, we find that deposits are growing, but not in line with our expectations.

This policy means that a cut in deposit rates may immediately be ruled out. Consequently, any cut in the advances rate — the base rate which most corporates are clamouring for — will also not be there.

Rajan is possibly waiting for the Fed hike which is more or less imminent. To that extent, we can hope to see some change in RBI's stance by the first quarter of calendar year 2016.

The RBI will have to take some steps regarding liquidity — either by way OMOs or cancellation of some of the auctions. It's the only thing that can give some comfort to the markets.

The markets are taking cue from the inflation figures as also from the pay commission award. They have been thinking of a higher interest rate — somewhere around 7.78% to 7.79%. Therefore, something which has to be done otherwise. That will be a major issue for the bond market; new issuances by corporates will also be lower.