Experts Opinion regarding the recent CRR,repo rate hike :

# bsgroupb August 2, 2008 at 10:31 pm

Experts Opinion regarding the recent CRR,repo rate hike :

“I don’t see much impact, home rates will be stable, no reduction. We will be reviewing our rates in three to four weeks,” said Keki Mistry, Managing Director, HDFC.

“The RBI’s moves aim to pre-empt inflationary pressures that easy liquidity and low short-term rates could foster. By removing the limit on reverse repo lending, the RBI has ensured that short-term interest rates will rise sharply. However, despite the CRR hike, there will be a surplus in the system, and this should keep long-term yields in check,” said HDFC Bank chief economist Abheek Barua.

According to Fitch Ratings senior director Ananda Bhoumik, banks are unlikely to raise lending rates despite the CRR hike. “Banks would be loath to increase lending rates, especially in retail loans — the second largest customer segment after companies — as recent quarters have shown rising interest rates affecting the consumers’ repayment capacity with corresponding increase in delinquencies,” he said.

“It’s a big signal by RBI. If banks increase their refinance rates our borrowers will have to pay half a percent more for their home loans. So we have to wait and watch,” said S.K. Mitter, MD, LIC Housing Finance.

“The CRR hike will definitely impact profitability of banks. We will have to focus on maintaining our net interest margins,” Bank of Baroda’s Chairman and Managing Director, Anil Khandelwal

“Any CRR hike will impact profitability as banks earn no interest on the money parked with the Reserve Bank,” United Bank’s Chairman, P K Gupta

Kotak Mahindra Bank’s Treasurer Mohan Shenoy said. “In my opinion, rates will remain firm and stable with chances of deposit rates moving up a bit,”

Bank of Baroda’s Chief Economist, Dr Rupa Rege Nitsure, said that the RBI’s move was “pre-emptive” in nature and was aimed at containing inflationary expectations.”Pressure on inflation is presently very high and rainfall so far has been deficient. The RBI is clearly focussed on inflation containment,” she said.

Foreign banking major, ABN Amro’s India Chief, Meera Sanyal, described the RBI move as “very aggressive and very clear in its intent to control inflation.”

But a hardening interest rate regime combined with the CRR hike could result in banks’ profitability and margins getting squeezed, she said.

Khandelwal of Bank of Baroda said that while his bank feels no need to increase lending rates as of now, it would take a call on its deposit rates soon.

“Deposit rates have peaked and our Asset-Liability

Committee (ALCO) will take a decision on whether to reduce our deposit rates or not,”

Deposit rate decisions would not be easy, said IDBI’s

Aggarwal. Several factors will have to be taken into account before a decision on this issue could be taken, he said, adding, “we will do a brain-storming before deciding on our deposit rates.”

On whether credit growth would slow down because of the CRR hike, bankers said that there was already a decelaration visible.

“Credit growth has decelarated and now with this increase in CRR limits plus the fact that corporates can now access funds from overseas, I feel there might be a slowdown in credit growth,” Aggarwal said.
# 2 ibsgroupb August 2, 2008 at 10:34 pm

Impact of repo rate hike on Indian economy:

1. Inflation will fall in the coming weeks if crude stays below $ 130 per barrel.
2. Rupee will strengthen against dollar.
3. There will be some effect on the margins of companies due to unavailability of cheap funds.
4. Bond yields will rise and stock markets will fall.
5. Major impact is on retail lending but marginal impact of corporate lending.

Impact of repo rate hike on Indian Stock Markets:

1. Banking: Even though investors expected CRR hike, bad sentiment will drag these stocks to new lows. Inflation figure will hurt banking stocks on Friday. So new lows for this worst affected sector. Banks will raise interest rates in the coming days. No one knows about exact derivative losses.

2. Real Estate: Tightening of liquidity will adversely impact this speculative sector. Expect new lows for DLF and Unitech.

3. Automotives: These stocks will suffer due to tightening of retail lending and interest rate hikes by banks.

4. IT stocks: Rupee will strengthen against dollar but Barrack Obama’s positive statement on “outsourcing” is a positive signal. We have to wait and see how these stocks will react.