New Delhi – Interest rates on retail loans are unlikely to go down despite the Reserve Bank’s decision to cut cash reserve ratio today. CRR is the amount of deposits that lenders must keep with the central bank. The RBI cut the cash reserve ratio by 25 basis points (0.25 per cent) to 4.25 per cent freeing up about Rs. 17,500 crore into the banking system.
In September, most lenders had cut retail rates after the RBI cut CRR by a similar 25 basis points. But the current situation is different, analysts said.
The impact of Tuesday’s cut in the CRR will be offset by higher provisioning for banks. The central bank has increased the amount of provisioning against restructured loans to 2.75 per cent from 2 per cent effective immediately. RBI’s move means banks will have to set aside larger sums for bad loans, which will adversely affect the profitability of lenders. K.R. Kamath, chairman of state-run lender Punjab National Bank, said higher provisioning is likely to impact average net profit of banks by 3 per cent in this fiscal year.
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