The Hindu Business Line : `CRR hike to have some impact on profitability'

Mangalore March 30 The decision of the Reserve Bank of India (RBI) to hike cash reserve ratio (CRR) will have a marginal effect on the profitability of bank , according to Mr Anantakrishna, Chairman and Chief Executive Officer of Karnataka Bank.

"The rate of interest of CRR is less; but earlier no interest was paid on CRR deposits. Today interest payment is there. There will be some marginal effect on the profit; the yield on advances or investment is much higher than the interest rate they pay," he said.

Step to control inflation

Terming the decision to hike the CRR as a measure to control inflation, Mr K.L. Gopalakrishna, Executive Director of Corporation Bank, said that funds liquidity would improve because of the Government spending. "I think, in anticipation of that, they have taken this decision," he said.

Asked if the bottom lines of banks will be affected, he said it definitely would as another half a per cent is increased. However, banks will look at measures to retrieve the situation.

Asked if the move would affect the retail loan segment, he said: "That we have to see. Anyhow there is no immediate plan to review PLR or anything. But we may look later."

"The higher rate regime is going to stay. We are more concerned about the spread," said Mr R. M. Nayak, Chairman of Lakshmi Vilas Bank.

He said the next seven to eight days would give them a good insight on how the bank has performed this fiscal. "Based on this, the Asset Liability Committee would take the call and come up with a broader solution."

The Executive Director of City Union Bank, Mr N. Kamakodi, expects an overall liquidity crunch. "It will not have a great impact on our balance sheet now, but we need to watch the securities side, on bond market aberrations."

Karur Vysya Bank source, however, felt that the bank's profitability could take a severe hit. While stating that the cost of funds would rise now, the source added that the bank had already effected an upward revision in its BPLR rate in recent months.