CRR for co-op banks raised by 50 bps

After raising the cash reserve ratio (CRR) of commercial banks, the Reserve Bank of India (RBI) today increased the CRR for scheduled primary (urban) co-operative banks (UCBs) by half a percentage point to five per cent.

The increase in the CRR will have no immediate impact on lending rates in the medium term, said cooperative bankers as there is ample liquidity in the banking system and credit demand has not picked up.

The rise in the CRR will be implemented in two stages, the first 25 basis point rise on September 18 to 4.75 per cent, and the second on October 2 to five per cent.

In addition to the increase in CRR the regulator also decreased the interest paid on cash balances maintained with the RBI to 3.5 per cent.

This measure bankers said will have an impact on the profitability of UCB's as its interest income is expected to be affected.

Punjab & Maharashtra Co-operative Bank Ltd managing director Joy Thomas said that the increase in CRR is a move to curb the rising inflation rate in economy since the banking system is flush with funds. The increase is unlikely to have any impact on the lending rates in the medium rates, said Thomas.

The revision in the interest paid on cash balances will have a negative impact on banks profitability, he added.