State Bank of India’s chairman, O P Bhatt told the reporters that The Reserve Bank of India has taken the correct step by increasing the cash reserve ratio by 0.75% to 5.75%. He said that the excess liquidity in the system, was disturbing the interest rate curve and it was possible for big companies to raise funds very cheaply.
Earlier in the day, the RBI had increased CRR by 0.75% in 2 installments, a move it considers would help in eradicating Rs 36,000 crore (Rs 360 billion) from the system.
Bhatt considers the policy as neutral as the interest rates on bank credit would be hiked over a duration of 6 months.
Calling the current period quite difficult one for the economy, Bhatt said that the doubt over the growth seen is due to the stimulus packages or actual underlying demand persists. He also maintained that the financial relaxation that occurred in the past won’t remain for ever as it can lead to lot of harm over long term.
But Bhatt said the CRR increase won’t affect SBI and its borrowers as the bank has enough liquidity. He doesn’t foresee any change in the deposit rates in the near future.
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