Mahalakshmi Hariharan

Mumbai: If you want to lock into high bank deposit rates, better rush, because some banks could cut interest rates. On the other hand, if you are biting your fingernails wondering if home loan rates will be revised, relax. Most banks could maintain the status quo.

On Tuesday, Reserve Bank of India (RBI) governor Yaga Venugopal Reddy announced a 0.5% increase in banks’ cash reserve ratio (CRR) from November 10, which will impound Rs16,000 crore of bank funds. But different banks could respond differently to this policy change, depending on how much spare cash they have already raised for lending.

Here’s a summary of what the credit policy could mean for you.

Deposit Rates: Bankers are of the view that rates may either see a cut or may remain stable for now. “We are looking at lowering our deposit rates in the first week of November. The CRR hike is likely to put pressure on our margins and in order to neutralise this effect, we’ll have to slash deposit rates,” says Harpreet Singh, business director for wealth management and distribution of loans with Centurion Bank of Punjab.

However, ICICI Bank does not expect an ease or hike in interest rates. “While CRR hike will have an impact on current liquidity levels, we expect overall liquidity conditions to remain favourable. In view of the CRR increase, the easing of interest rates in the banking system seems unlikely,” says Chanda Kochhar, joint MD of ICICI Bank.

An analyst with a domestic brokerage firm is of the view that with more inflows waiting to flow into the country, banks may prefer to cut deposit rates soon.

Home & Auto Loans: They’re expected to remain stable for now. Given that credit growth is on a slide, banks may adopt a status quo approach.

“There may not be an increase in home loan rate at this point as credit growth has already slowed down. Recently, most banks have dropped their loan rates. Home loan rates should remain stable for now,” said an SBI official.

Auto and personal loans are also expected to remain stable for now. According to Aseem Dhru, executive vice-president and head of business banking with HDFC Bank, “lending rates have already dropped.” RBI's move is aimed towards managing liquidity than giving any direction to the interest rate structure. Dhru says there are chances of some softness in lending rates after the hike, but these are unlikely to go up.

The Rupee: Analysts expect to see a slight depreciation of the rupee following the CRR hike. "RBI intervention is expected to push the rupee back to the 39.50-40.00 against the US dollar, from its current level of 39.40," said Bhaskar Ghose, managing director and CEO, Indusind Bank.

However,while RBI remains committed to fighting strong inflows, Shuchita Mehta, Senior Economist, Standard Chartered Bank says further action by authorities cannot be ruled out. "With heavy liquidity pouring in by way of inflows, further regulation and liberalisation of inflows may happen," Mehta says.

Meanwhile, if the US Federal Reserve decided to come up with a rate cut of 25-50 bps tomorrow, foreign exchange premiums would go up — increasing the cash and forward premiums to reflect the widening interest rate differential between the US and India.

What about loan recovery agents?

Looking at the rise in malpractices by banks' recovery agents in the recent past, the regulator has asked banks to follow the "prescribed" considerations while engaging recovery agents.

In case of persistent abusive practices, the Reserve Bank would consider imposing a temporary or permanent ban on banks. An operational circular in this regard would be issued by November 15, 2007 . "Banks have started imparting special training to their recovery agents. They have warned them from using any kind of statements or weapons that could pose damage to the borrower's life and property," claims a senior bank official. Corporate rates: Corporate lending rates will remain intact, say bankers.

Source : DNA