Till the end of March the borrowers can take benefit of the loan rates as commercial banks are not going to raise their prime lending rates or the deposit rates. But large companies borrowing short-term money at sub-PLR rates might have to pay more as banks might raise interest rates on short-term loans. After RBI announcement of 75-basis point hike in the cash reserve ratio, or the proportion of deposits that banks have to park with RBI, CEOs of several commercial banks signaled about this. But seeing the increased competition in the car loan segment banks will not raise the car loan rates.
It is expected with the hike in CRR to 5.75% from 5% in two stages around Rs 36,000 crore will be sucked out from the banking system. AC Mahajan, CMD of Canara Bank said, “Despite the CRR hike, there is ample liquidity and thus in the near term, rates will not rise.” On the other hand DL Rawal, CMD of Dena Bank said, “However, rates will firm up only after March if credit disbursal shows signs of revival.” Currently banks are parking Rs 75,000-85,000 crore with RBI at 3.5% under the so-called reverse-repo window as not many companies are borrowing. In return, the central bank pays interest on the money deposited with it under the reverse-repo mechanism. After the hike in CRR, CEOs feel that their net interest margins distributed between cost of liabilities and profit on advances can shrink between 7 and 10 bps because the cash invested with RBI will not earn any interest after the hike in CRR, which, in turn, will impact NIMs. Unlike reverse-repo, in case of CRR, the RBI impounds the cash and it does not pay interest.
In an interview SBI official told ET that hike in CRR means an additional outflow of Rs 6,000 crore for the bank, but there will be marginal impact on its NIM. In the December quarter, SBI had surplus liquidity of Rs 75,000 crore. In case of PNB after hike in CRR around Rs 1,800 crore will be absorbed, shrinking its NIM by 10 bps whereas for HDFC Bank Rs 1,500 crore will be absorbed and NIM will shrink by 7-8 bps. For Canara Bank the outgo will be of Rs 1,600 crore and NIM will shrink by 7-8 bps.
However there will be no impact of CRR hike on car loan customers as there is increased competition in this segment. Early this month ICICI Bank had reduced its interest rates on car loans. Following this, other large players also reduced their car loan rates.
MV Nair, CMD of Union Bank of India and chairman of the Indian Banks’ Association said, “The hike in CRR has to be adjusted and the impact will have to be passed on to customers. Hence, the sub-PLR advances would be impacted and reduce over a period of time.”
TY Prabhu, CMD of Oriental Bank of Commerce pointed out, short-term rates are likely to go up but this will depend on the surplus liquidity that each bank has with them. Large banks surplus liquidity ranges between Rs 8,000-10,000 crore.
IndusInd Bank MD & CEO Romesh Sobti said, “With CRR hike, banks will lend more to corporates instead of parking funds with mutual funds. The hike will have little impact on margins but then loan growth will make up for it.” According to Dhanlaxmi Bank MD & CEO Amitabh Chaturvedi, “There may not be a hike in loans and deposit rates. Margins are unlikely to be hit as there is enough money in the system.”