Consumers may not have got any respite from high interest rates, but they also need not be apprehensive about further increase with the Reserve Bank of India giving a clear signal for stable monetary policy stance.
In its quarterly review of the annual credit policy on Tuesday, RBI raised the statutory CRR deposits by half a percentage point to suck out Rs 16,000 crore (Rs 160 billion) from the liquidity market, but left it for the banks to take a call on revising interest rates.
However, there was no indication from banks that they would change their lending rates.
Although RBI has kept the key benchmark interest rates like the bank rate and short term lending and borrowing rates (repo and reverse repo rates) unchanged, the banks will have to take a call on the interest rates in the view of the new regulations, the central bank chief Y V Reddy said while addressing reporters.
RBI while announcing the quarterly review of the credit policy increased the Cash Reserve Ratio (CRR) from 6.5 per cent to 7 per cent with effect from August 4, 2007 requiring banks to collectively deposit an additional Rs 16,000 crore with RBI.
As the banks do not earn any interest on CRR deposits, the regulation would impose additional burden on the banks.
Reacting to CRR increase, Bank of Baroda's chairman and managing director Anil Khandelwal told PTI: "The CRR hike will definitely impact profitability of banks. We will have to focus on maintaining our net interest margins."
Bankers, however, welcomed the removal of the reverse repo (overnight borrowing) ceiling of Rs 3,000 crore (Rs 30 billion) which they said would provide relief to banks.
Concerns over inflation were clearly visible in the RBI's statement as also its focus on liquidity management, bankers said.
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 the CRR hike was unexpected, IDBI Bank's CFO, L P Aggarwal, said.
"Cost of funds will go up and banks's net interest margins could get adversely impacted," he said.
Interest rates may not go up, but there won't be any slackening either, bankers said.
"No bank will reduce its PLR," private sector lender Kotak Mahindra Bank's treasurer Mohan Shenoy said. "In my opinion, rates will remain firm and stable with chances of deposit rates moving up a bit," he said.
According to Bank of Maharashtra chairman and managing director M D Mallya: "There is little possibility of lending rates going up as liquidity is comfortable. However, deposit rates of short maturities can come down."
There could be lowering of interest rate on deposits of shorter maturities of less than one year, he said.
It would depend on banks and their asset-liability condition, he said, adding the impact needs to be assessed.
Interest rates are unlikely to harden from the current level as credit-deposit ratio in the last few months have come down, said Punjab National Bank executive director K Raghuraman.
Saumitra Chaudhuri, member of Prime Minister's Economic Advisory Council, said: "It may not have any impact on the interest rates because the RBI has raised the CRR to absorb excess liquidity on account of external capital inflows."