CRR hike may result in hikes in deposit and credit rates

Mumbai, July 31 (UNI) RBI's upward revision in Cash Reserve Ratio (CRR) may prompt bankers to hike their interest rates both on deposits and advances.

According to senior bankers, a hike in interest rates will be the only feasible route before bankers to absorb the impact of CRR hike.

RBI, in its quarterly policy review today, had announced an increase of 50 basis points in CRR to 7.00 percent.

''Hike in CRR has made it necessary for banks to amass more money to meet the manadatory cash requirements. This can be made possible only through a hike in interest rates. Naturally, hike in deposit rates are inevitable to attract more deposits.'', A.P. Padmanabhan, Senior Manager, Canara Bank told UNI.

Many bankers had reduced the deposit rates in recent past in the backdrop of excess liquidity while many others are readying for ratecuts.

However, the present hike in CRR may leave the banks to rethink on this decision in order to attract more deposits from individual and corporate investors.

On the other side, a hike in lending rates might bring worries to borrowers as the increased rates may come applicable even to the existing borrowers while the existing depositors will not benefit from the hike in despoit rates, he said.

However, contrary to the forecasts, RBI didn't moot a reduction in foreign currency deposits in the quarterly policy.

Hike in CRR is also likely to affect the Small and Medium Enterprises(SMEs) as they may find it difficult to access funds in the changed monetary environment.

A possible hike in bank credits will claim a significant impact on SMEs as it will narrow the credit channel. This apart, the industry is keeping an eye on inflation rates, especially commodity prices, which they expect would come down in next few months.

UNI