Repo rate cut to likely reduce bank deposit rates, drive PSU customers to private banks: Former SBI Chairman

The Reserve Bank of India’s (RBI) decision to reduce Repo Rate by 40 bps will force public sector banks to reduce their deposit rates, which could further push people to go to the private banks for higher interest rates, former State Bank of India (SBI) Chairman Pratip Chaudhuri told Zee Business Managing Editor Anil Singhvi.

This may lead to a banking crisis similar to what happened with the Yes Bank, Chaudhury opined. The former Chairman while criticising the move, said that the markets new better than the RBI, indicating why the markets fell today.

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Chaudhuri said that the RBI governor was wrong to say that the lending rates were down because of the Repo Rate. The lending rates are down because of the CRR, he said adding that if the regulator wanted to keep interest rates down, it should cut the CRR. There will be no impact on interest rates because of Repo Rate cut.

Chaudhuri also said that the RBI’s position has been contradictory in nature. It did not reduce the Repo Rates when banks previously asked for it, arguing that the inflation was high and now when the inflation is high at around “8 per cent”, it has reduced the Repo Rate, he said. There is no reason… no logic behind the move, he further added.

He also suggested that the RBI should give the huge reserves to banks for them to give export credit as the export demand was week, he said. The banks do not have a dollar funding which is a problem before them.

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The RBI today announced a Repo Rate cut by 40 bps to 4 per cent. The Central Bank of India reduced the Reverse Repo Rate to 3.35 per cent as well. Among other decision, the regulator also extended moratorium on loan repayments by three more months in view of COVID-19.