NEW DELHI: The increase in the cash reserve ratio (CRR), announced by the Reserve Bank of India (RBI), will not impact the profitability of banks despite the higher percentage of their deposits they have to park with the central bank under the stipulation, a top Finance Ministry official said here on Wednesday.

"No impact on profitability of banks," said Vinod Rai, Special Secretary (Financial Sector), when asked if the RBI decision would affect the banks' operations.

Last week, the RBI had declared a 50 basis point increase in the CRR to 5.5 per cent as a measure to suck out excess liquidity from the system and, thereby, check the rise in prices.

However, speaking to newspersons on the sidelines of a function for signing an MoU with India Infrastructure Finance Company Ltd. (IIFCL), the Chairman and Managing Director of Andhra Bank, K. Ramakrishnan, said the bank's profitability was likely to take a slight hit on account of the RBI measure. "The rise in CRR will have a marginal impact of Rs. 2.80 crore on [the bank's] profitability,'' he said.

For adhering to the CRR stipulation, Andhra Bank might have to park an additional Rs. 300 crore with the RBI, Mr. Ramakrishnan said. Although the bank had the provision to mop up about Rs. 1,400-1,500 crore as Tier II capital through bonds, there were no plans to raise funds this fiscal, he said.

He said there were no plans to hike deposit rates, having already effected an increase earlier, and now, the bank's rates were competitive, he said. "We keep reviewing interest rates and are not thinking of raising the prime lending rate for the moment.''

Earlier, Andhra Bank entered into a memorandum of understanding with IIFCL for offering customised solutions in project advisory services, lending and structured finance.

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