Consumers may not have got any respite from high interest rates. For, any hopes of interest rates softening in near-term have dissipated with 0.5 per cent hike in Cash Reserve Ratio bankers said.
Bank of Baroda Chairman & Managing Director Anil Khandelwal said “the CRR hike will definitely impact profitability of banks. We will have to focus on maintaining our net interest margins. “Deposit rates have peaked and our Asset-Liability Committee (ALCO) will take a decision on whether to reduce our deposit rates or not,” he added.
Hail lifting of cap
Bankers, however, welcomed the removal of reverse repo (overnight borrowing) ceiling of Rs 3,000-crore which they said would provide relief to banks.
Simultaneously, they ruled out any decline in lending rates in the medium-term. Decision on deposit rates is a a call that individual banks would have to take, they said.
Banks were expecting a status quo and hence CRR hike was unexpected, IDBI Bank CFO, L P Aggarwal, said. “Cost of funds will go up and bank’s net interest margins could get adversely impacted,” he added. Several factors will have to be taken into account before a decision on this issue could be taken, he said, adding “we will do a brain-storming before deciding on our deposit rates.”
On whether credit growth would slow down because of CRR hike, bankers said that there was already a decelaration visible. “Credit growth has decelarated and now with this increase in CRR limits plus the fact that corporates can now access funds from overseas, I feel there might be a slowdown in credit growth,” Mr Aggarwal said.
Apex industry chambers, however, welcomed RBI’s decision not to raise interest rates but expressed concern over fall-out of liquidity mopping measure of enhanced cash reserve ratio (CRR). Exporters expressed disappointment over monetary policy not addressing their problems arising out of sharp rise in rupee value against major currencies.
“We have a word of caution about tight monetary regime, as small and medium companies may find it difficult to access funds in such a monetary environment, since effective rates and availability of bank credit are an issue for them,” Confederation of Indian Industry said.