And the relation between the number of retail outlets, and a CRR hike not affecting a bank is ........... ???
Hi Ivanboesky,
Monetory authority can curb inflation by following ways -
1. Increase the rate at which the central bank (RBI) lends money to bnks
2. Increase the CRR-in this case the banks have to park more money with RBI and therefore have less to lend to their customers.
3. Sell goverment bonds and absorb money from the system.
The last option is the most common and effecient way to reduce the money supply. The second one, i.e. hike in CRR, is not that common. I think the last time RBI did this was in 2004. Usually this is followed by a interest rate hike. Eitherways, when such a think happens banks have less money to lend. Also it becomes very choosy whom it lends out to.
ICICI bank has a better marketing network, and it is aggressive in further strengthening itself. This is one of the reason why it went for Sangli bank. When a bank has a better retail network, product diversification etc., it can sustain margin growth. Therefore for ICICI it should not be very difficult absorb to cost over a period of time.
Hope that answers your question
Thanks,
Mohan