Chambers say CRR hike may hit credit growth

Written by Corporate Bureaus | New Delhi, Oct 30 | Updated: Oct 31 2007, 06:18am hrs
The Reserve Bank of Indias (RBI) move to hike cash reserve ratio (CRR) by 0.5% taking it to 7.5% while keeping the bank rate unchanged has drawn mixed reactions from the industry chambers of commerce. While Ficci and Assocham said the CRR hike may further hurt credit growth, CII said it was on expected lines.

While RBI has maintained the bank rate and repo rate at the earlier levels, the increase in CRR by 50 basis points will impound liquidity thus reducing lendable resources of the banks, Ficci said in a statement. However, Ficci president Habil Khorakiwala expressed hope that the CRR increase will not have an adverse impact on the lending rates, which are already at a high level.

Reacting to the monetary policy, CII said keeping in mind the international trends in interest rates, and particularly the indications coming in from the US, RBI could have considered a cut in repo rate along with the hike in CRR. It said that RBI has also attempted to develop an integrated financial market, improve credit delivery mechanism, particularly to agriculture and small and medium enterprises, which is welcome.

Ficci and CII have welcomed the measures announced by the RBI to permit importers and exporters having foreign currency exposures to write covered call and put options and permitting oil companies to hedge their foreign exchange exposures. These measures would help the relevant players deal with rupee appreciation more effectively, they said.

Assocham said interest rates should have been reduced to help the industry.

Assocham president Venugopal N Dhoot said that hike in CRR by 0.5% would suck money from the market and the banks would now find it difficult to individually reduce the interest rate. He added that industry is reeling under pressure due to high interest rates and CRR hike may further hurt credit offtake.