The hike in cash reserve ratio will not put immediate pressure on interest rates, senior bankers said. However, in the medium term it will have an impact as credit has started picking up.
The half a per cent two stage hike in CRR to 5 per cent will suck out around Rs 8,500 crore (Rs 85 billion) from the system. Most bankers do not expect much pressure on liquidity as the system is flush with surplus liquidity of over Rs 40,000 crore (Rs 400 billion). There is also another Rs 52,000 crore (Rs 520 billion) locked into the market stabilisation fund.
"In the short run, there will not be any pressure to hike the interest rates," said State Bank of India chairman A K Purwar.
M Venugopalan, CMD, Bank of India, also said: "I do not see any pressure on lendable resources. Banks have enough money for the coming six months at least. There is also deposit growth to maintain the liquidity."
According to him, interest rate will be affected only when the consumer price index inflation goes up. "Interest rate is not likely to be affected by liquidity since there is ample liquidity in the system. However the interest income of banks will be affected slightly," Venugopalan pointed out.
On the other hand, K C Chakrabarty, executive director, Punjab National Bank said, "We will keep a close watch on the market for the next 15 days before taking a decision (on rate hike)."
Some of the senior bankers, however, said that in the ensuing busy season when credit pick-up gathers further momentum, pressure will be felt.
So far, the credit growth during the year has been Rs 67,524 crore (Rs 675.24 billion) against a paltry Rs 2,586 crore (Rs 25.86 billion). On a year on year basis the credit growth has been Rs 1,76,508 crore (Rs 1,765 billion) in contrast Rs 75,807 crore (Rs 758 billion).
Anil K Khandelwal, CMD, Dena Bank, "We do not see any pressure on our lendable resources despite the credit demand. We will wait and watch on the interest rate front. On the interest income we will be affected marginally by Rs 5-6 crore (Rs 50-60 million) per annum but of course each and every penny counts at the end of the day."
Union Bank executive director Ratnakar Hegde also said that the interest rate will not go up as there is no problem on the liquidity front.
G V Nageshwara Rao, managing director & CEO, IDBI Bank said: "On account of the hike in CRR and the fall in interest payable on CRR balances, our cost of funds will rise by 7 per cent. This is likely to be absorbed by banks and thereby affecting profitability."
Most bankers perceive that the rise in CRR is not significant enough to push up lending rates, though the market reacted differently on the news on Saturday as bond prices fell sharply. The perception had been that interest rates would be stable in the medium term.
Both the central bank and the finance minister had been talking of stable interest rates in the medium term. This was despite the yield on the ten-year government security rising by 150 basis points to 6.6 per cent and then stabilising at 5.95 per cent.
Only two players in the market have recently raised interest rates so far, HDFC on the fixed rate home loans and State Bank of India on the same product by 25 basis points.