The Hindu Business Line : ‘A timely move to ease liquidity crunch’

Chennai, Oct. 10 The Reserve Bank’s move to cut CRR by 100 basis points, in addition to the recent 50 basis points cut, will ease liquidity concerns by brining in Rs 60,000 crore into the system and is a major positive move, say bankers.

Mr M.V. Nair, Chairman and Managing Director, Union Bank of India, said that it is a response to the liquidity requirement of the system. It is a big positive move by RBI. Changes in deposit rates or lending rates of the bank will be taken only after the asset-liability committee meeting, he said.

Mr S.A. Bhat

Mr S.A. Bhat, Chairman and Managing Director, Indian Overseas Bank, said it is a good move, this will give IOB an additional Rs 1,300 crore. However, a cut of 1.5 per cent would release about Rs 60,000 crore which is not sufficient as the system would require Rs 1 lakh crore. RBI has taken the best possible decision for the banks, the country and the public and has done fine balancing between growth and inflation.

Mr Sundara Rajan, Chairman and Managing Director, Indian Bank, said it is a positive move which will further enhance liquidity in the system. About Rs 900 crore would be available to Indian Bank due to the cut which will be utilised for lending purposes. Only after the monetary policy announcement on October 24 will any decision be taken on changes in deposit and lending rates, he said.

Mr Romesh Sobti

Mr Romesh Sobti, Managing Director and CEO, IndusInd Bank, said the cut in CRR is timely and will bring confidence in the market. Yesterday, call rates were at 11 to 12 per cent while it rose to 22 per cent today morning. It has been seen that banks have been reluctant to lend to customers. The CRR cut will become effective from tomorrow. However, the impact of the cut will take some time to restart the whole lending machine, he said.

Mr S.K.Goel

Mr S.K. Goel, Chairman and Managing Director, UCO Bank, said, “It is a timely move by RBI and will ease the liquidity problem and is expected to improve the market sentiment.”

Mr M.D. Mallya

Our Mumbai bureau reports: Mr M.D. Mallya, Chairman and Managing Director of Bank of Baroda, said the RBI move would by and large ease-out liquidity concerns. “It is a good development in the present context. Banks were in talks with the RBI about the liquidity issue. We will have to wait and watch the impact of the move,” he said.

In addition to this, other inflows are also likely to come into the system, such as the Government spending, farm loan waiver and fertiliser subsidies, he added. About a reduction in interest rates, Mr Mallya said it would depend on the cost of deposits, which are currently high.

A senior official from State Bank of India said that the cut in the CRR by RBI would help ease the liquidity situation. For SBI it will release about Rs 8,500-9,000 crore. But the RBI may have to take some more measures as the markets have not responded very positively to the rate cut, he said. “The problem is that, world over, people are scared and don’t know what is happening,” he said.

The 150 basis points cut in the CRR rates will release around Rs 1,600-1,700 crore into the system for Axis Bank. Any further measure by the RBI will depend on the prevailing liquidity conditions in the market, said a senior official with Axis Bank. Regarding a cut in the bank’s lending rates, the official said it was too early to comment and a decision would be taken next week.

Ms Chanda Kochhar

The reduction in Cash Reserve Ratio is a welcome step given the current rupee liquidity conditions. This should have a cooling effect on the market and ease liquidity. ICICI Bank has adequate rupee liquidity in the context of the current environment. ICICI Bank also has liquidity of Rs 12,000 crore in its overseas subsidiaries. The bank has never used rupee funds for its international growth initiatives, Ms Chanda Kochhar, Joint Managing Director & CFO, ICICI Bank, said.

To instil faith

Mr R.S. Reddy

Our Hyderabad bureau reports: Mr R.S Reddy, Chairman and Managing Director, Andhra Bank, said

“The cut in CRR by an additional one per cent is a right move as it will bring in Rs 60,000 crore liquidity into the market. Further, the move would instil faith in the financial markets that there is enough liquidity. The market will definitely ease. Now, though there is enough money, the trust is missing in the market. The infusion of Rs 60,000 crore would bring this back.” According to Ms Renu Challu, Managing Director, State Bank of Hyderabad, while a cut in CRR is a right move, it probably may not be sufficient to ease the liquidity crunch and more measures may be put in place in the days to come or in the Credit Policy review due later this month. The inflow of Rs 60,000 crore may not impact the inter-bank call rates (which are on higher side) in a significant manner. However, RBI’s move is well-justified at this juncture.

Earlier than expected

Dr V.A. Joseph

Our Coimbatore bureau reports: The CRR cut has come earlier than expected. It is nevertheless a breather, says Mr N. Kamakodi, Executive Director, City Union Bank. Stating that the cut would give enough room for liquidity as it was getting tighter, Mr Kamakodi said “this quarter is peak period for banks and the cut is definitely welcome. We are , however, concerned about the industry’s cash strapped situation,” he said referring to the textile and steel sectors. According to Mr Kamakodi, the smaller banks have a higher exposure in these sectors and some of the units were finding it difficult to service the borrowings. CUB though has not stopped lending, but is taking a cautious stand.

Mr N. Kamakodi

The Chief Executive of South Indian Bank, Dr V.A. Joseph, said the move would definitely help banks, especially in easing the current liquidity position. “It is a relief at this juncture,” he added. SIB also has not stopped lending, but has taken a cautious approach, he said.

Not sufficient

Our Kolkata Bureau reports: The cut would help pump in more money into the system. However, there will not be any immediate lowering of interest rates on advances, according to senior bank officials.

According to Mr T.M. Bhasin, Executive Director, United Bank of India, the central bank’s measure to cut CRR by 150 basis points would not be sufficient enough to meet the cash requirement of banks. “Banks have been borrowing from RBI to the tune of Rs 95,000 crore through the repo window. The 150 basis points cut will inject Rs 60,000 crore into the system. There will, therefore, be a shortfall of Rs 35,000 crore. We expect the RBI to reduce CRR by another 50-100 basis points,” he said. Mr Bhasin also said that there would not any immediate lowering of interest rates on advances under the present situation.

Mr V.K. Dhingra, Executive Director, UCO Bank, said, “The interest rates on high-cost bulk deposits on short-term basis (such as for three-month and six-month period) are close to 13 per cent. Since the cost of funds are so high it is unlikely that there will be any reduction in lending rates.”

Mr K.R. Kamath

According to Mr K.R. Kamath, Chairman and Managing Director, Allahabad Bank, the reduction in CRR would give a lot of relief to banks and would help tide over the liquidity crisis to a great extent. He, however, declined to comment on the lowering of interest rates.