The Hindu Business Line : ‘Cost of funds may go up’

Mangalore, Hyderabad, April 29 Mr B. Sambamurthy , Chairman and Managing Director of Corporation Bank, has said that uncertainties in global financial market, in global capital flows, in central banks’ response to these developments and in inflation pressures find mention in the policy statement of RBI for 2008-09.

When Business Line sought the comments of Mr Sambamurthy on policy statement, he said: “Looks like that uncertainty probably governs the stance of the policy. Basically I find uncertainties turning the stance of the policy, and the response what we have today looks like a response to that.”

Stating that policy talks about challenges in liquidity management, he said, “In the present context, I think, tactical monetary management is more important than the strategic monetary management.” Lot of initiatives are there in the policy to develop market. Payment system is one the policy is emphasising, he said.

To a query if the bank would hike lending rates following an increase of 0.25 per cent in CRR , he said the bank would examine the implications of the hike. “It will definitely increase the cost of funds for us. We need to see how to go about that. It has to be decided in the ALCO,” he said.

Mr Ananthakrishna

Mr Ananthakrishna, Chairman and Chief Executive Officer, Karnataka Bank, said that containing inflation and maintaining growth is the main focus of annual policy statement for 2008-09. There is liquidity in the market. It is an arrangement to remove liquidity in the market.

He said a balanced view towards stability has been taken in the policy. Stating that incremental credit-deposit ratio has been less than last year, he said, “Incremental CD ratio was about 85 per cent last year, and this year it is about 70 per cent. That means that there is liquidity in the market. There is not much pressure on the credit off take. Therefore this policy is moving towards stability.”

Asked if there is a chance for increasing lending rates, Mr Ananthakrishna said that may not be there.

Mr M. D. Mallya

Mr M.D. Mallya, Chairman and Managing Director, Bank of Maharashtra, said, “Given the situation of the entire economic scenario -- both external and domestic -- and given the circumstances and challenging time, it is a very good policy.”

The CRR hike of 0.25 per cent could suck further liquidity from the system. The overall liquidity is good. “I would say that credit would not be deprived to the productive sectors of the economy. They would get credit, and it would help in overall moderating the inflation,” he said.

One more welcome measure is regarding the housing loan, where RBI has increased the cut-off from Rs 20 lakh to Rs 30 lakh for calculating the risk weights at 50 per cent. That will also help in overall capital planning as far as the banks are concerned.

Asked if there will be any hike in lending rates, he said: “We will have to discuss that in ALCO regarding the overall impact before taking any measure.

On expected lines

Mr Amitabha Guha, Managing Director, State Bank of Hyderabad, said: “Overall, the policy is on expected lines with no change in the key rates. We are happy about the relaxation of asset classification norms for the credit to infrastructure projects. Second, the enhancing of risk weights limit on housing loans to Rs 30 lakh from Rs 20 lakh is another good measure for the banks as it would require lesser capital allocation in this regard. As far as rate hike due to CRR hike is concerned, each bank will have to take a call. At SBH, there will be no immediate increase in rates.”

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