Mumbai: On Tuesday after RBI Governor Y V Reddy increased the Cash reserve ratio by 50 basis points, and although he described it as only a means to suck liquidity and not as a rate signal, the unanimous reaction of bankers was that rates would remain stable and not fall since the CRR hike pushes up their costs.
KV Kamath, MD & CEO, ICICI Bank says, “But the force of competition has proved too compelling. A bunch of banks have lowered various rates even before the week is out. “
“State Bank of India has disguised its rate cut by offering a new 550 day special deposit scheme at 8.75 per cent, against the average 9 per cent offered by most banks like ICICI and IDBI for similar products. Bank of Baroda has cut car loan rates by 1 percentage point and Centurion Bank of Punjab cut deposit rates,” he added.
A 50 basis point CRR hike increases the cost to banks by just 4 basis points.
Hence a CRR hike can be passed on as higher rates only if the money supply in the system is tight.
However currently bankers say they are faced with surplus cash and lower demand for loans.
Deposit rates were higher in the first half because bankers wanted to be prepared for the busy season and the financial year-end.
But with the busy season underway and the need to deploy the cash already collected at high rates, banks have begun cutting rates on term deposits and some loans.
Comments
0 comment