New Delhi, Apr 18 (UNI) ICICI Chief K V Kamath today said the CRR hike by 50 basis points will have an impact on profitability of banks, and he would wait for the Monetary Policy to decide on the Bank's interest rates.
The Reserve Bank of India (RBI) had yesterday hiked the cash reserve ratio (CRR) by 50 basis points to eight per cent to fight inflation.
''CRR rates impact the profitability of the banks. Whether they choose to absorb it or pass it on to the customers, it is their choice,'' Mr Kamath told reporters here on the sidelines of a function here.
He added that the Monetary Policy, to be released on April 29, will determine the future course of action for the largest private sector lender.
''We need to watch carefully for the numbers, particularly, the profitability numbers of the last quarter which will out in a few days,'' he said.
Mr Kamath said increasing interest rates was a decision that banks will have to take in due course.
''You can always increase the interest rates, but there is an issue that there has to be a demand for credit...You need to see what in a competitive context people do, before you go for any rate adjustment,'' he said.
Mr Kamath said there is ample liquidity in the system and only a small amount is being sucked out adding that ''there is a strong pipeline of investment and we are not seeing any slowdown in that so far.'' The hike in the CRR, which reduces the amount of lendable money in the hands of banks, has closed the window for a reduction in interest rates.
This may force banks to make profit with less funds, which means they cannot reduce their loan rates.
CRR is the portion of deposits that banks have to keep with the RBI.
Yesterday's CRR hike is expected to pull out Rs 18,500 crore from the banking system by May 10.
Most bankers say they will wait for the RBI monetary policy review to take a call on whether rates may go up from current levels.
UNI SR BJR PM1843