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The Reserve Bank's move at infusing liquidity by reducing the CRR by 50 basis points seems to have taken most of the chiefs of smaller bank by surprise.
“It is a positive surprise”, said Dr N. Kamakodi, Managing Director of City Union Bank, while the MD and Chief Executive of Karnataka Bank, Mr P. Jayarama Bhat, termed it as a defensive policy. Karur Vysya Bank's Chief Executive, Mr Venkataraman, conceded that this reduction of 50 bps in CRR was not ‘fully expected', though there were lots of expectations in the market.
A majority of bankers that Business Line spoke to did not seem to have expected this move. Be it Karur Vysya Bank or Lakshmi Vilas Bank, City Union Bank or Catholic Syrian Bank, most of them have in recent quarters maintained that there was not much pressure on liquidity. High interest costs and the concern over rising NPAs were forcing them to take a more cautious stance on the lending front.
Bankers also state that the general economic condition was not very conducive for growth. In such a scenario, do bankers expect this reduction to bring about any big change?
Mr Jayarama Bhat says that this reduction of 50 basis points in the CRR is a concrete step towards easing liquidity and this supply would increase the credit portfolio of banks.
“With this, the RBI's guidance of 16 per cent credit growth looks to be achievable. Naturally, the profitability of banks is also likely to improve with this release of liquidity,” said Mr Bhat.
Justifying the RBI's stance of not tinkering with the key policy rates, Mr Bhat said that with three risk factors – rupee depreciation, crude oil prices and fiscal deficits – being the cause for concern, the RBI has taken a conscious stand of not touching the policy rates, and it has put a lot of caveats for reducing the policy rates in future.
The CUB's MD, Dr Kamakodi, said this could be taken as a signal for a bright future, and an indication that the tough times in the interest rate cycle could well be over.
Mr Venkataraman felt that this might not have much of an impact on KVB. “The investment demand has been sluggish. Unless this improves, we cannot expect much of an impetus,” he added.
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