Will CRR hike impact banks' bottomlines?
The immediate trigger for the market slide yesterday supposedly was the RBI raising the Cash Reserve Ratio of banks by 0.5%. CNBC-TV18 reports on how the hike might affect banks' bottomlines.
The Reserve Bank' raising the Cash Reserve Ratio by 0.5% means that banks will have to lock up Rs 13,500 crores of their cash with the Central Bank and get no interest on it. But will this hurt bank profits so much as to warrant a 6.5% fall in the Bankex? Most bankers think not. The news isn't postive they admit, but it will hurt profits very marginally, if at all they say.
Besides having to place more cash with the RBI, banks could also make treasury losses as bond prices fall. But experts say, as of now, there isn't too much of a down side on that from either.
"This is going to have only a second decimal impact on bank earnings because they are running on strong credit margins right now and credit growth is good and the hit they used to take on the investment cycle is out of the way," said Investment Advisor, PN Vijay.
What's worrying the market is whether the RBI Governor Y V Reddy will come in with more tightening steps. The Finance Minister's statement that more steps will be taken if necessary to curb inflation, smacks of another rate hike. This would mean more treasury losses.
Also, banks will be forced to raise deposits at higher and higher rates. With the Finance Minister and RBI specifically stating that loan growth needs to cool down, bankers may face a hit on margins and volumes, however, forex flows can change this picture. If FII and FDI flows continue, and if the government spending rises, as it might in the last quarter of the year, bond prices may be stable and banks may see less pressure.
CRR impact won't be much: Bank of Baroda
The Reserve Bank' raising the Cash Reserve Ratio by 0.5% means that banks will have to lock up Rs 13,500 crores of their cash with the Central Bank and get no interest on it. But will this hurt bank profits so much as to warrant a 6.5% fall in the Bankex? Most bankers think not. The news isn't postive they admit, but it will hurt profits very marginally, if at all they say.
Besides having to place more cash with the RBI, banks could also make treasury losses as bond prices fall. But experts say, as of now, there isn't too much of a down side on that from either.
"This is going to have only a second decimal impact on bank earnings because they are running on strong credit margins right now and credit growth is good and the hit they used to take on the investment cycle is out of the way," said Investment Advisor, PN Vijay.
What's worrying the market is whether the RBI Governor Y V Reddy will come in with more tightening steps. The Finance Minister's statement that more steps will be taken if necessary to curb inflation, smacks of another rate hike. This would mean more treasury losses.
Also, banks will be forced to raise deposits at higher and higher rates. With the Finance Minister and RBI specifically stating that loan growth needs to cool down, bankers may face a hit on margins and volumes, however, forex flows can change this picture. If FII and FDI flows continue, and if the government spending rises, as it might in the last quarter of the year, bond prices may be stable and banks may see less pressure.
CRR impact won't be much: Bank of Baroda
posted by Yovan Shah at 8:42 PM
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