The Hindu Business Line : Bankers brace for the squeeze

Advertisement

Mumbai Feb. 10 A flare up in inflation numbers and excess cash in the system in the past week have got bankers nervously guessing at the future moves of the Reserve Bank of India.

While some are sure of an imminent hike in the Cash Reserve Ratio (CRR), others say the central bank might wait for its recent monetary measures to bite.

Domestic inflation is at a two-year high of 6.58 per cent against the previous week's 6.11 per cent.

"It is quite clear inflation is not under control despite the Government and the RBI having looked at fiscal as well as monetary measures, respectively. A hike in the CRR (a portion of the bank deposits mopped up by RBI) or an increase in the short-term interest rates (reverse repo or repo) may now be on the cards," said a senior official at a leading public sector bank.

Though bankers are betting on an increase in the CRR in the short term, they think it may not slow down credit growth.

"A hike in CRR may not help as credit growth in February and March is usually steep and most banks also show higher borrowings in the last quarter while closing books. Credit growth is likely to be poised at over 25 per cent in the next two months," said a public sector bank official.

The RBI in its quarterly review of the monetary policy lifted the repo rate (the interest rate at which banks borrow from RBI against securities) by 25 basis points to 7.50 per cent and increased the provisioning requirements on standard assets. Bank officials say the impact of the measures will soon show.

"The RBI may not hike rates immediately as the impact of the monetary measures already undertaken will soon be factored in. If the RBI pushes for action, it may mark up CRR to slow down the money supply growth and ensure credit flows to key sectors," said Mr M.B.N. Rao, Chairman and Managing Director, Canara Bank.

"The increased provisioning of Rs 2,000 crore to Rs 2,500 crore will make banks more cautious about lending to risk prone segments and also cut profits by 0.8 to 1 per cent. In the short term, RBI may hike the repo and reverse repo rates," said Mr Krishnan Sitaraman, Head- Financial Sector Ratings, Crisil.

Bond prices have tumbled by over 50 paise in the past three days in anticipation of high inflation numbers.

ond dealers have been nervous about a CRR hike since the stance of the monetary policy has been liquidity management.

"The spread between the 5-year and 30-year government security has widened to 38 basis points from 27-28 basis points," Mr C.E.S Azariah, Chief Executive Officer, Fixed Income Money Market and Derivatives Association.

More Stories on : RBI & Other Central Banks | CRR & Bank Rates | Economy

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Mumbai B-school grads top hiring list, says study

Hindujas to partner Qatar Telecom, Altimo for Hutch

Chidambaram confident of taming inflation

Aerotropolis - new `cities' springing up around airports

ONGC seeks Govt nod to serve notice on GAIL

Italy sets up € 300-million `Go India' fund

Bankers brace for the squeeze