CRR cut to help ease liquidity in the system: Karnataka Bank

The Managing Director and Chief Executive Officer of Karnataka Bank Ltd, Mr P. Jayarama Bhat, has said that the RBI’s move to reduce CRR by 50 basis points in the third quarter review of monetary policy for 2011-12 is a concrete step in easing liquidity situation in the banking system.

Speaking to Business Line, Mr Bhat said that CRR cut is a concrete step in easing liquidity, and this supply of liquidity will increase the credit portfolio of banks. (The CRR cut of 50 basis point is likely to release Rs 32,000 crore of liquidity into the banking system).

With this, the RBI’s guidance of 16 per cent credit growth looks to be achievable. Naturally the profitability of banks is also likely to improve with this release of liquidity, he said.

With three risk factors – rupee depreciation, crude oil prices and fiscal deficits – being the cause for concern, the RBI has taken a conscious stand of not touching the policy rates, and it has put a lot of caveats for reducing the policy rates in future.

“My opinion is that reduction in policy rates may not be that aggressive until the inflation comes down to the expected level that RBI has envisaged,” Mr Bhat said, adding: “Overall I can say that this is a defensive policy.”

vinayakaj@thehindu.co.in