RBI hikes CRR, no change in interest rates

Mumbai: Just hours after Prime Minister Manmohan Singh sought help from India Inc to control prices, the Reserve Bank of India (RBI) hiked the Cash Reserve Ratio (CRR).

While increasing the CRR, which is the cash commercial banks have to keep in reserve, the RBI did not touch the interest rates.

With inflation hovering above the seven-per cent mark, a hike in interest rates by the RBI wouldn't have been surprising.

But Governor YV Reddy instead chose to make it tougher for banks to lend by hiking the CRR by 25 basis points.

The second CRR hike in the last one-month means tighter liquidity and a curb on inflation.

But banks say interest rates are unlikely to change for now.

"We are looking at Rs 8000 crore or so of liquidity going out of the system and on that amount the banks will not earn interest. That is what I call P&L hits that the banks will take and that is something that we can take in the national context. We have a larger challenge to address," KV Kamath, CEO and MD of ICICI Bank, said.

The RBI policy had more cheer for home loan consumers. Loans up to Rs 30 lakh will now get the benefit of lower risk weightage. The limit has been raised from the earlier Rs 20 lakh.

Urban cooperative banks in Tier II cities can lend up to Rs 50 lakh in home loans, which is double the earlier limit.

"I think it is more a recognisation that even the modest house purchase today in most markets across the country would possibly cost that much," a State Bank of India official said.

Acting against possible hoarding of food grains, RBI also advised banks to be cautious while giving advances to traders in agricultural commodities.

While the RBI may have resisted the temptation to increase short-term lending rates, the target of bringing inflation down to five per cent may see tighter monetary measures in the near future; the inevitability of higher interest rates may have been delayed but is definitely not off the radar.

(With inputs from George Koshy)

(For updates you can share with your friends, follow IBNLive on Facebook, Twitter, Google+ and Pinterest)

#RBI #Home loans #CRR