The Hindu Business Line : Hike in risk weights, a more tangible tool

Chennai April 4 Last week ended with the `shock and awe' that the Reserve Bank of India administered by jacking up key rates. "This is part of the series of hikes which commenced on February 17, 2007 and an extension of the `monetary tool' that the RBI now can leverage more, due to the executive amendment to the RBI Act," says Mr Robin Roy, Principal Consultant, Banking & Financial Services, PricewaterhouseCoopers (P) Ltd, Mumbai.

"The latest hike coincides with the traditional `lean season' of credit disbursements and its overall impact on credit demand in the current quarter is to be actually analysed," he adds.

"Besides, the banks' balance sheets for March 31 have already been decked up and any major unavailed lines of credit committed in the last fiscal should see some action. The large PSBs stand to gain from the hike in interest payable on CRR balances with the RBI," foresees Mr Roy.

In effect CRR hikes need not rein in credit growth, he says. A more tangible tool, according to Mr Roy, may be hike in risk weights. Reason? "It directly impacts the regulatory capital levels of the banks, in turn impacting risk adjusted returns on capital employed in the loan assets," he reasons.

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