New Delhi: Get ready to cough up more money to the banks. The home loans, vehicle loans and personal loans may just get costlier.
While the Reserve Bank of India (RBI) has bitten the bullet and raised both Cash Reserve Ratio (CRR) and Repo rates, the cascading effect on banks will hit home soon. Bankers have already hinted at a probable rise in lending rates.
Deputy Managing Director, ICICI Bank, Chanda Kochchar speaks on the matter in an exclusive interview with CNN-IBN.
“Any of the tightening measures do make the market react much more conservatively. The market builds some of this in as the reaction on the interest rates. So you could see a regime of high interest rates for some time and if the costs go up, the lending rates could go up. But we have to watch how the market reacts to the whole thing,” says Kochchar.
RBI says that Inflation has emerged as the biggest risk. India’s central bank expects to bring down inflation to 7 per cent by March 2009 through such drastic measures.
CMD, Bank of India, S Narayansami, told CNN-IBN that the RBI move indicates that the government wants the inflation to get tamed and that the move will augur very well for the Indian economy in the medium-term.
“Within the revised interest rates, which is inevitable, credit growth will naturally get moderated and will naturally get moderated," he says.
"We will also fall in-line with RBI policy to be more cautious in credit expansion because otherwise if we do not contain aggregate demand, then the whole exercise will become futile,” he adds.
The RBI has also scaled down growth expectations. It says an 8 per cent GDP growth is more 'realistic' as against its previous estimate of 8.5 per cent.
“In the short term, it is going to create pain, undoubtedly, especially on the banking and financial services sector stock and on the interested sensitive sectors like the Real Estate," says Deputy MD of ICICI Prudential, Nilesh Shah.
"However, over a longer term, at least it gives the credibility of the central bank to fight inflationary expectations and it will probably help us in receding some of the economic worries which people have,” he adds.
Governor RBI, Y V Reddy made the tough decision while countering the fact that any hike in rates will affect availability of credit to the industry, thereby hampering economic growth.
The common man will take home part of the burden in shape of higher interest rates, soon.
- CRR is the proportion of funds parked with the country’s central bank
- The revised CRR is up by 25 basis points which is a quarter per cent.
- The repo rate is up 50 basis points or half a per cent
- Both rates are at 9 per cent for the first time in eight years
- The CRR hike will be implemented from August 30
- Inflation eased to 11. 89 per cent for July 12 from a previous week’s high of 11.91 per cent
- An increase in state-set fuel prices had pushed inflation to its highest since 1995
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