The Hindu Business Line : ‘Policy aimed at fixing benchmark for call rates’

Coimbatore, July 31 The Karur Vysya Bank Chairman, Mr P.T. Kuppuswamy, said: “the policy aims to address the short-term issue of excess liquidity in the banking system.”

The call money rates, he said were lower during the first quarter of the current fiscal due to excess liquidity. By increasing the CRR and withdrawing the ceiling limit on reverse repo, the RBI has restored its ability to fix the benchmark for call money market. “Over the next month or so, we will see call rates moving in 6 to 8 per cent corridor. Rates on short-term papers will rise as also the yield-to-maturity on Government securities.”

“It is clear that exceptionally low short-term rates will not be accepted,” he said and added that banks might, in a phased manner, effect reduction of rates on liabilities and assets.

The City Union Bank Chairman, Mr Balasubramaniam, said the policy announcements were on expected lines. “It will not pose a problem to liquidity,” he said and added that it aimed at liquidity management rather than “r ate signal”.

To a query on interest rate, he said: “banks are not in a mood to increase the interest rate.”

City Union Bank for instance, has decided to withdraw the ‘CUB 500’ deposit scheme very soon (first week of August). The bank has mopped up over Rs 500 crore within two months of its launch.

Dr V.A. Joseph, Chairman, The South Indian Bank Ltd, said the policy would actually place banks in a more advantageous position.

“Even if we lose marginally due to the hike in CRR rate, it would be adequately compensated by the removal of the cap on daily reverse repo,” he said.

While he does not foresee a hardening in the interest rate trend in the near term, he has not ruled out a possibility in a

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