Bankers and economists described the Reserve Bank's move to hike the repo and cash reserve ratio (CRR) as "aggressive", saying that banks' profitability could get negatively impacted this fiscal.
The apex bank today hiked the repo rate by 0.50 per cent and CRR by 0.25 per cent. Both accordingly stand at 9 per cent post-today's hike with the CRR hike slated to come into effect from August 30.
"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 told PTI here today.
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.
Sanyal, however, described the RBI's revision of the country's economic growth rate to 8 per cent from the earlier 8-8.5 per cent as "realistic."
More From This Section
Bank of Baroda's Chief Economist 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 focused on inflation containment," she said.