Banks to decide on interest rates after RBI’s annual credit policy

On Thursday RBI had announced a hike in Cash Reserve Ratio (CRR) rate by 50 basis points - or half a percentage point- in a two-step process to 8%. After this announcement hike in interest rates is expected although country’s leading bankers have forbidden any possibility from immediate hike in interest rate. The bankers said they will wait for the Reserve Bank’s annual credit policy scheduled for April 29.

This decision has come as a relief for those who are planning to take a home or car loan. For some time now the loan seekers can enjoy the stable interest rate regime.

However many of the financial institutions have started assessing their liquidity positions in milieu of RBI decision to raise CRR – percentage of deposits that banks have to keep with the regulator -- to eight per cent from 7.5 per cent earlier.

Commenting on this ICICI Bank managing director and CEO K V Kamath said, "We will see as we go along. We are all working in a market place. We have to understand market. For that we need next..."

While HDFC chairman Deepak Parekh said the company has not yet decided on its interest rates. He said hike in CRR by 50 basis points will increase pressure on the margin of banks by 3-4 per cent.

"There is going to be profitability impact on banks, that I think is given because whatever is kept aside as CRR, you are not going to get interest on it," Kamath said.

Punjab National Bank chairman and managing director K C Chakrabarty expressing his views said "we have to see how we can cope up with the situation...immediately nothing is going to happen."

He said most of the banks will decide on interest rates after the annual credit policy, as everybody will get the clear picture of monetary stance for 2008-09.