Industry reaction to CRR hike

Industry bodies Ficci, CII, Assocham, PHDCCI and FIEO today gave a mixed reaction to the 50 basis point increase in cash reserve ratio (CRR) announced by the Reserve Bank of India in its mid-term monetary policy review.

Ficci, Assocham and FIEO were of the view that the CRR hike may further hurt credit growth.

"While RBI has maintained the Bank Rate and Repo Rate at the earlier levels, the increase in CRR by 50 basis points will impound liquidity thus reducing lendable resources of the banks," Ficci said in a release.

Ficci president Habil Khorakiwala expressed hope that the CRR increase will not have an adverse impact on the lending rates, which are already at a high level.

Federation of Indian Export Organisations (FIEO) said the 50 basis points increase in the cash reserve ratio will adversely impact small and medium enterprises.

FIEO president Ganesh Kumar Gupta expressed disappointment that no significant measures had been taken to reduce the cost of credit to the SME export sector in view of the appreciating rupee impacting export growth.

"An increase in CRR by 50 bps will restrict credit for the SME sector, and could create a liquidity crunch adversely affecting trade and industry," he said.

Gupta also appealed for a package to bail out the SME export sector.

CII said RBI’s review of monetary policy was on expected lines. However, keeping in mind the international trends in interest rates, and particularly the indications coming in from the United States, RBI could have considered an interest rate (Repo Rate) cut to go along with the CRR hike of 50 bps, CII said.

Associated Chambers of Commerce and Industry of India (Assocham) said interest rates should have been reduced to help the industry. Assocham president Venugopal N. Dhoot said banks would now find it difficult to reduce the interest rates. CRR hike may also further hurt the credit offtake, he added.

Sanjay Bhatia, president, PHDCCI, said the increase in CRR should have been avoided. He, however, welcomed no change in Bank Rate, Repo Rate and the Reverse Repo Rate.

FICCI, CII and PHDCCI also welcomed measures announced by the RBI to permit importers and exporters having foreign currency exposures to write covered call and put options and permitting oil companies to hedge their foreign exchange exposures. These measures would help the relevant players deal with rupee appreciation more effectively, they said.