MUMBAI: Commercial banks are unlikely to raise their prime lending rates — offered to the best customers — or deposits rates at least till the end of March but large companies borrowing short-term money at sub-PLR rates may have to cough up more. This was indicated by CEOs of several commercial banks soon after RBI announced a 75-basis point hike in the cash reserve ratio, or the proportion of deposits that banks have to park with RBI. However, car loan rates are unlikely to rise due to increased competition among banks in this segment.

The hike in CRR to 5.75% from 5% in two stages will suck out Rs 36,000 crore from the banking system. “Despite the CRR hike, there is ample liquidity and thus in the near term, rates will not rise,” said AC Mahajan, CMD of Canara Bank. “However,” said DL Rawal, CMD of Dena Bank, “rates will firm up only after March if credit disbursal shows signs of revival.” Banks have been parking Rs 75,000-85,000 crore with RBI at 3.5% under the so-called reverse-repo window because companies do not want to borrow. The central bank pays interest on the money deposited with it under the reverse-repo mechanism.

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In light of the CRR hike, CEOs feel that their net interest margins — the spreads between cost of liabilities and yield on advances — could shrink between 7 and 10 bps. That is because the cash parked by banks with RBI because of the hike in CRR will not earn any interest, which, in turn, impacts NIMs. Unlike reverse-repo, in case of CRR, the cash is just impounded by RBI and the central bank pays no interest.

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