The Reserve Bank of India’s (RBI’s) recent measures to check the rupee depreciation lack transparency, State Bank of India (SBI) chairman Pratip Chaudhuri said on Wednesday.
Among other things, Chaudhuri questioned the manner in which the benchmark repo rate has been left unchanged and said the steps have severely choked short-term liquidity for banks and pushed up their cost of funds.
“Please say the rupee is under pressure and I am raising the interest rates, so you increase the repo rate from 7.25% to whatever level you want. But what has been done now is that repo rate remains at 7.25% but no amount is available.
The real rate under the marginal standing facility (MSF) is 10.25%. It is much better to say the repo is 10.25% rather than trying to say different things at different places,” Chaudhuri said on the sidelines of the Ficci banking conclave.
Under the MSF, banks can borrow up to 1% of their net demand and time liabilities from the central bank to tide over short-term liquidity mismatches.
By not raising the key rates, RBI is taking ‘under cover’ steps to manage the rupee, which are not “frank, fair and transparent,” said Chaudhuri.
“It doesn’t help anybody in covering or camouflaging the repo rate. If the repo rate has to be taken to 10.25%, so be it, but do it in a transparent manner. But RBI chose to choke liquidity,” said Chaudhuri.
“We all wish, hope and pray that these are extremely temporary and rolled back at the earliest opportunity,” he added.
Chaudhuri, along with the chiefs of east-headquartered banks including UBI, UCO and Allahabad Bank, met finance minister P Chidambaram on Wednesday to discuss stalled projects. Close to Rs 31,000 crore is stuck in such projects in the eastern region where banks have extended Rs 23,000 crore as loans, he said.
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