Comments by Mr. V. Vaidyanathan, Chairman and Managing Director, Capital First, on

the RBI’s credit policy on 20thSeptember 2013.

We are not surprised that the RBI raises repo rates by say 25

bps. They have simultaneously reduced MSF by 75 bps. The

expectation on MSF reduction was a big more than 75 bps, but

the increase in Repo is expected, as this establishes that the RBI

means to be tough on inflation, at the same time would like to

release funds for productive lending. The short term interest

rates in CPs and CDs had spike by 200 to 250 bps, and the

decision to reduce MSF by 75 bps and the CRR change to 95%

will definitely cool short term rates.

The August Inflation numbers at 6.1% as compared to 5.79% in

July 2013.  We expect inflation to come down in the coming few

months based on good monsoons. Moreover, and as and when

the government introduces newer fiscal measures it will give the

RBI headroom to reduce rates later.

Since customers are habituated to invest in Bank’s fixed deposit

and find it more convenient, raising interest rates could even be more effective than Inflation indexed

Bonds to improve savings rates in the country.

One of the matters to be addressed is the high SLR rate in India. We are hoping that the RBI reduces

SLR over time, to release funds for lending purposes in the Indian economy, this may form a part of the

reform agenda over time.