Reserve Bank of India's decision to hike the percentage of deposits all banks must park with it will not affect their profitability, a senior finance ministry official said on Wednesday.
"No impact on profitability of banks," Vinod Rai, special secretary (financial sector services), said when asked if the cash reserve ratio increase would affect the profitability of banks.
RBI had last week announced a 0.5 per cent increase in cash reserve ratio to 5.5 per cent in two phases to absorb excess liquidity from the economy and check rising prices.
However, Andhra Bank Chairman K Ramakrishanan said the bank's profitability was likely to take a marginal hit due to the CRR hike.
"The rise in CRR will have a marginal impact of Rs 2.8 crore (Rs 28 million) on profitablity," Ramakrishanan told reporters on the sidelines of signing of a Memorandum of Understanding with India Infrastructure Finance Company Ltd.
To maintain CRR at 5.5 per cent, the outgo from Andhra Bank may be an additional Rs 300 crore (Rs 3 billion), Ramakrishanan said.
On raising resources he said, the bank had headroom to raise Rs 1,400-1,500 crore (Rs 14 to Rs 15 billion) through Tier II capital.
However, it would not raise runds this fiscal through Tier I or Tier II capital, he added. On interest rates scenario, he said: "Interest rates are stable and there would be no hardening, at least till end of this financial year."
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