'CRR hike to have minimal impact on bank earnings'

Global rating agency Moody's said on Monday the CRR hike announced by the Reserve Bank of India in its quarterly review would have 'negligible impact' on bank earnings.

". . .the actual CRR increase is likely to have negligible impact on bank earnings, with our estimates indicating an immediate effect of around 3-5 bps on their net interest margins," Moody's Investors Service said.

In its quarterly monetary policy review on January 29, the RBI had announced a 0.75 per cent raise in the cash reserve ratio, or the amount banks need to park with the RBI, from 5 per cent earlier.

"We do not expect immediate upward pressure on bank loan interest rates, which could hinder acceleration of loan growth and any future asset quality improvements in the banking system," it added.

Moody's further said Indian commercial banks have seen significant slowdown in loan growth in the last few quarters, with loan growth estimated to have slowed to around 14.3 per cent year-on-year as of January 15, 2010, compared with growth of more than 30 per cent reported in fiscal years 2006 and 2007.

It added that the increase in the CRR by 75 basis points reflects the central bank's cautious approach in attempting to contain rising inflation in India as well as signalling the market that the credit cycle has bottomed out and is currently undergoing a strong recovery.