Markets

A 25 bps repo rate cut and a neutral stance match perfectly for now: Jayesh Mehta, BofAML

It looks like with the next swap of Rs 25,000 crore, we would go into surplus mode. If that mode continues for two, three months, transmission would happen dramatically, said Jayesh Mehta, VP, Service Delivery Manager, Bank Of America – Merrill Lynch, in an interview with ETNOW after the RBI credit policy.

Edited excerpts:

Are you happy with the RBI credit policy because markets are not unhappy, the banks are happy, the public is happy. What more can one ask for?

It is perfectly on the expected lines and there was some 10-20% probability of a 50 bps rate cut but that would have been too much. Someone said we have uncertainty over El Nino, elections and maybe another 25 bps cut can come later but at this moment, a 25 bps cut and a neutral stance match perfectly.

At least on the bond side, the reaction is more about the demand supply. Where everybody is talking about transmission, we have to see because they have not commented on it. The governor was non-committal about whether they will go into surplus mode or not but as of now, it looks like with the next swap of Rs 25,000 crore, we would go into surplus mode. If we go into a surplus mode and continue for two, three months, transmission would happen dramatically.

What about RBIs concessions on countercyclical capital benchmark (CCB) and on liquidity coverage ratio (LCR)?

LCR is on expected lines. It is 2% every year. We have LCR, SLR and I do not really see that as any surprise. LCR is a global thing. Why have duplications? It is a road map and that is the path it is going through. In terms of countercyclical buffer, we are strengthening it a little bit more. Earlier, the buffers were more about the interest rate. They are now looking at last parameters like credit deposit and stuff like that. We have to see what guidelines come out on counter-cyclical buffers.

What do you make of the RBI comments on using Section 35 AA of the Banking Regulation Act ?

Nothing is changed as far as the IBC process is concerned. It is actually getting a little bit delayed because we do not have a library of past judgements on Supreme Court and all that but as far as this 12th February circular is concerned, nothing really has changed as far as IBC per se is concerned.

As far as motivating and incentivising banks to push NPAs to NCLT is concerned, was not happening and maybe RBI did use 12th February circular to actually Read More – Source