In the wake of possible Cash Reserve Ratio hike, banks are considering increasing the sub-prime lending rate, while keeping the benchmark prime lending rate (BPLR) untouched.
RBI is widely expected to increase the CRR in the third quarter review of the monetary policy in January-end. Currently 5 per cent of the banks’ net demand and time liabilities is deposited with the RBI and banks do not get any return on this cash. A 50-basis-point (bps) hike in the CRR will suck out about Rs 20,000 crore from the system.
Analysts are of the opinion that a faster-than-expected rise in profit is making a strong case for the central bank to suck out liquidity and even some prominent bankers have stated that their NIMs might not come under pressure on a sequential basis as they were able to re-price their high-cost deposits. However, some bankers are of the opinion that hiking the CRR may not solve the problem since inflation is due to supply-side bottlenecks.
Inflation has shot up to 4.78 per cent in November as compared with 1.3 per cent in October, mainly due to a surge in food prices. A research report of Citigroup Global Markets has stated that headline inflation could touch 8 per cent by March, much above the central bank’s projected rate of 6.5 per cent. The government, however, is of the opinion that there is no need for an emergency action even after this week’s sudden spurt in inflation.