Bankers say: RBI hike of CRR has been a pleasant surprise and a master stroke

Bankers expressing their views on the Reserve Bank of India's move to hike the cash reserve ratio by 75 basis points have said it “has been a pleasant surprise and a master stroke.”

Different reactions were given by high officials of various banks on RBI’s move.

The Executive Director of City Union Bank, Mr N. Kamakodi, pointed out, “The banking regulator has proved that it is acting independently. We all thought unilaterally, but the RBI's master stroke has been in not increasing the interest cost while maintaining its cool on inflationary pressures.”

“Every bank had surplus liquidity throughout the year. So, the increase in CRR would only siphon out the excess liquidity in the system.”

According to Karur Vysya Bank Managing Director, Mr P.T. Kuppuswamy, they were expecting hike in CRR and the market had already discounted it. “It is an appropriate measure,” he said.

Dr V. A. Joseph, Managing Director and Chief Executive Officer, South Indian Bank, while expressing his views said, “Though a hike in CRR was expected, the 75 bps hike is slightly more than our expectation.” However he welcomed the reduction in credit growth targets from 18 to 16 per cent. He further added, “Credit growth differs from bank to bank. The current fiscal has, in fact, been the best year for us, so far as credit growth is concerned. We grew at 22 per cent. And considering the current growth pace, we will be able to achieve 25 per cent growth”.

When enquired how this hike would impact their bottom line, all of them replied, “It will not impact us. The impact if at all would be virtually low.”

Mr Neeraj Swaroop, Regional Chief Executive, India & S. Asia, Standard Chartered Bank said, “The RBI has adopted the right balance for managing inflationary expectations, while supporting a robust economic recovery. The 75 basis point hike in the CRR, the largest-ever increase, is a strong indication of the central bank's growing confidence in a recovery. In view of this, the move clearly indicates the beginning of monetary policy normalization. The central bank is adopting a calibrated approach towards normalization as liquidity management is essential for possible interest rate increases to be fully effective. Liquidity management also helps manage the two challenges we can foresee for the near future. One is keeping inflationary expectations in check. The other is managing liquidity as capital inflows could swell necessitating liquidity tightening while ensuring enough to support a potentially large government borrowing program.”

Mr R.S. Reddy, Chairman and Managing Director, Andhra Bank, pointed out, “Though the 75 bps increase in CRR is more than what we expected, it may not immediately impact lending to retail, MSME and agriculture, among others. Broadly the PLR would not be touched. However, there is scope of some tweaking sub-PLR lending which may be made more moderate.''

Ms Renu Challu, Managing Director, State Bank of Hyderabad said, “The RBI move was largely expected. By hiking CRR, the RBI has sent a signal that it is the end of easy money regime. The interest rates should start hardening now as the banks would face some tighter liquidity conditions to the extent of the rise in CRR.''

According to Mr P. Jayarama Bhat, Managing Director and Chief Executive Officer of Karnataka Bank Ltd, the RBI has done a balancing act. Giving his views he said the hike of 75 basis points in CRR might speed up credit release and, as there is enough of liquidity available in the system at present banks might not increase the interest rates.