The banking industry, which has been reeling under tight liquidity in recent times, has lauded the move by the Reserve Bank of India to cut cash reserve ratio (CRR) by 50 basis points on Monday. The RBI’s surprising move will release Rs 20,000 crore into the system.
AC Mahajan, chairman & managing director, Canara Bank, said that it was a positive step taken by the RBI at an opportune time. It would help credit market improve availability into the system.
“It is too early to say if the RBI will go for key rate cuts in its forthcoming credit review on October 24. High interest rate is the function of demand and supply. So we will review the situation before deciding on the interest rates on the high bulk deposits.
?Keeping in view the festival season, we have increased the interest rates for 500-day deposits to 10.5% from 10%, which will come into effect since October 10, 2008.”
“It is too early to say that what will happen to inflation. But I hope that it should be under control keeping in view the fact that a downward trend has already begun. We definitely expect growth,” he further said.
Chanda Kochhar, joint managing director & CFO, ICICI Bank said, “I think some positive impact will be there on liquidity in the beginning. There may be some easing on the front of the overnight rates which have shot up substantially. We have to watch if any further cut in the CRR or policy rates will happen during the credit review, which is just two weeks away. However, the intention of the RBI is clear. We will be taking steps accordingly.”
MD Mallya, CMD, Bank of Baroda, explained that the move to reduce CRR would ensure the infusion of liquidity worth Rs 20, 000 crore into the system. Inflation must be controlled now, he adds.
“In fact inflation has come below the mark of 12% for the first time in recent past which clearly shows the positive impact of the measures that have been taken by the RBI so far. The focus of the RBI has always been checking inflation and price stability. I do hope that the country will be able to achieve the GDP growth rate of 7.5-8% in due course of time,” he said.
“We thought, as a liquidity measure, the RBI would bring in liquidity to the system on the SLR front, rather than a slash in the CRR. Going forward, we expect the call rates to ease significantly, towards 9%. Bond yields will also show some signs of cooling down, although there may not be any significant rally in the same,” said RVS Sridhar, senior vice president, treasury with Axis Bank.
