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RBI's Monetary Policy review: 'Good for banks and other stakeholders'
The decision of the RBI Governor, Urjit Patel not to change the repo rate is a welcome step, under the present circumstances when banks are flushed with gigantic amount of deposits to the extent of Rs. 11.40 lakh crores. Dr. J.D. Agarwal, Chairman, Indian Institute of Finance while appreciating the RBI's move said that reducing Repo rate now were have been counter-productive.
Dr. Agarwal has also welcomed the decision of RBI to withdraw its guidelines with respect to maintaining 100% CRR on new deposits after demonetisation. The banks will have now access to these funds without maintaining CRR of 100%.

Dr. Agarwal's in his earlier analysis, urged RBI to pay interest on incremental CRR of 100% to banks on 30th November 2016. The government got seized with the issue increased the limit under Market Stabilisation Scheme from Rs.30,000 crores to Rs.6 lakh crores, very wisely after Dr. Agarwal urged the RBI to pay interest on incremental CRR and its negative effects.

Indeed it was very thoughtful of the government to take that decision and now RBI to allow banks to keep the incremental deposits.

The RBI governor has also been practical in reducing the estimate of GDP growth from 7.6% to 7.1%. However, I feel the inflation estimate of 5% is also on the safer side. Given the lack of liquidity in the system and cash crisis in the hands of individuals, firms, businesses and industry, the inflation may even be less than 4% for the year 2016-17.

Dr. Agarwal feels that the monetary policy announcement today is more practical and on the safer side. The policy stance would help the banks in maintaining their good health and wealth in the present situation. The profitability of banks which has been under tremendous pressure, due to gigantic Non Performing Assets (NPAs) would be better for the current year.

The monetary policy announced today would greatly help all the stakeholders and banks, reiterated Dr. Agarwal.

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