Crr Cut Seen Keeping Calls At 6%

A phased cut in Indian banks cash reserve ratio starting on Saturday will boost liquidity and ease money market conditions but is unlikely to cause any substantial rise in credit offtake, bankers and analysts said on Friday.

Poor credit disbursals by banks so far in the current financial year were unlikely to be reversed by increased liquidity as the principle problem was one of lack of demand, they said.

Last week the Reserve Bank of India (RBI) announced a 50 basis point cut in cash reserve ratio to 10.5 percent effective on Saturday. Another similar cut takes effect on January 18. Money market conditions will definitely ease, said Aashish Pitale, manager of debt research at ICICI Securities and Finance Company Ltd (I-Sec).

 

Call money rates will come down although the drop in rates may not be as sharp as last time around.

Cuts in the ratio in November and December saw call money rates plummet to a 1-2 percent range from around 10 percent. This time, rates were likely to drop to around six to seven percent, Pitale said. Call money has been in the 10.5-11.0 percent range through the last week.

Rates fell to unrealistic levels last time, said Pitale. This time around, I think calls will probably quote around six percent.

The boost in liquidity was, however, unlikely to have any major impact on bank credit, bankers and analysts said. Interest rates are not the problem as far as banks credit disbursals are concerned, said P G Kakodkar, chairman of Indias largest commercial bank, the State Bank of India (SBI).

What we are facing is a lack of demand. Kakodkar felt that some major industries such as steel and automobiles were already facing the problem of inventory pile-up, indicating a lack of demand.

Analyst Amit Rajpal of Prime Broking said another problem was that the bulk of bank advances went to sectors which were not doing well this year.

About 50 percent of bank advances go to four sectors: textiles, chemicals, iron and steel, and aluminium, he said. All of these are doing badly this year.