CRR hike to have no impact across sectors: Experts

RELATED NEWS Credit policy will not affect bond mkt: Kotak Mah Bk Complete statement: RBI's Q3 2009-10 Monetary Policy review RBI hikes CRR by 75 bps to 5.75% in two stages Nifty BSE | NSE 10/02/12 Are Mutual Funds betting on Nifty? Other Stocks in this news JK Paper | Era Infra Engineering | DLF | YES BANK | Housing Development Finance Corporation | Patel Engineering Company | Shree Cements | Puravankara Projects | Anant Raj Industries | Ispat Industries | Kinetic Motor Company | ICICI Bank |

In its monetary policy announced on Friday, The Reserve Bank of India (RBI) raised the cash reserve ratio (CRR) for banks by a higher-than-expected 75 basis points. However, the key interest rates were left unchanged.

Reacting to the hike, bankers said that despite the CRR hike, they had no leeway to raise rates because nobody was demanding money much these days.

The banking sector index was down 0.1% at 11:20 am, after the central bank hiked CRR. The index was up nearly 1% before the policy.

In a knee jerk reaction to the announcement, the benchmark Sensex tanked over 300 points and broke the 16,000 mark, the benchmark 10-year bond yields rose 4 basis points and the rupee and stocks extended losses.

A 75-basis point hike in banks' cash reserve requirements (CRR) by the Reserve Bank of India (RBI) is "appropriate and adequate", Finance Secretary Ashok Chawla said on Friday.

Kaushik Basu, Chief Economic Advisor to the Finance Minister, expect the CRR hike to mop-up excess liquidity. "The central bank's step is in the right direction." He reiterated that inflation won't go out of control. "There is a small stirring of inflation in sectors other than food."

India Inc reacts

Rajeev Talwar, Group Executive Director, DLF : "There will be no significant impact of CRR hike on the real estate sector. Banks will absorb its impact."

Venugopal Dhoot, Chairman and Managing Director, Videocon India: "The consumer goods industry will welcome this as interest rates have not gone up. There is ample liquidity available in the system, even after the CRR hike. The rural market is growing and rural population has access to the banks. Since interest rates have not gone up and GDP projection has increased demand will continue to grow."

HM Bangur, Managing Director, Shree Cement Ltd : "The inflation is a huge worry and the economy has also picked up and the artificial stimulus was not expected to continue for long. So gradually tapering off and bringing back the economy to normal was expected. In the near term the industry demand should be coming down a little, but in the long term things should be better."

Ravi Ramu, Director-Finance, Puravankara Projects : "CRR (hike) will only reduce the liquidity, I don't think is going to impact very much, it may help (contain) inflation. Right now the demand is for credit to be increased, they are saying the credit may be reduced. That may not be very welcome news for the industry. It is disappointing to the small home lenders."

Anil Surekha, Executive Director-Finance, Ispat Industries : "In future, if the RBI decides to increase CRR rates further then there can be an impact. I think the government should do something for farm products. Inflation is not coming from the manufacturing side, it is coming from agriculture. RBI has also said in this current year they don't see a growth in farm products. It is an alarming trend so unless we improve productivity of agri-products it is going to be a problem."

Sulajja Motwani, Managing Director, Kinetic Motor : "The two-wheeler industry has been showing good growth pattern both in urban and rural markets. The fact that interest rates have not been increased will continue to spur demand. There was a lot of anxiety on whether the government will pull back the various stimulus measures. I think the fact that interest rates have not been changed will now put the entire industry at ease. The fact that the GDP forecast has been raised will mean the world will be looking at India more so now than ever before."

Arvind Parakh, Director, Jindal Stainless Ltd: "I think it's just status quo that is being maintained by the central bank. There is a lot of liquidity in the system so we don't see interest rates going up. It won't do anything to demand either. It's a very challenging task for the RBI to manage inflation and growth so this is the best that they could have done. I think RBI will have to monitor exchange rates."

V Kumaraswamy, Chief Financial Officer, JK Paper : "As of today the banks are flush with funds and in the last few months there has not been too much of credit offtake. It is not likely (that rates will go up)."

HS Bharana, Chairman, Era Infra Engineering : "I don't think there will be any impact. There is a lot of liquidity in the market. It is not going to affect lending rates."

Sonal Patel, Chief Operating Officer, Patel Engineering : "RBI has increased CRR by 75bps as against market expectation of 50 bps. It has clearly indicated its intention to control inflation. We do not foresee the interest rates to go up in near future because of the expected inflows in the country and the comfortable existing liquidity prevailing in the market."

Amit Sarin, Chief Executive, Anant Raj Industries : "Home loans will get expensive, but not too much, reasonably. But if you look at the fall in property rates, it's been phenomenal. So, in the long run, the price of the finished product will not go up. It should not affect demand."

Read bankers' reaction on Page 2...