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Will banks hike interest rates?
BS Reporter in Mumbai
 
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May 01, 2008 10:27 IST
Bankers on Wednesday asserted that interest rates were unlikely to go up in the immediate future. They said this on the eve of a crucial meeting of state-owned bank chiefs with Finance Minister P Chidambaram, where the government is expected to signal a bias towards a soft interest rate regime.

North Block sources indicated that banks may be advised to manage their interest rate margins through lower deposit rates, especially during the lean credit season.

"Banks can easily manage the situation by reducing discounts on some products without sending a message to the market that rates are on the rise," said a source.

Bank of India chairman and managing director T S Narayanasami, said, "There is some room to revise the deposit rates in certain maturity buckets if the yield on 10-year paper remains around the current levels of 7.9 per cent."

The finance minister has sought an impact assessment of the monetary policy changes from the 28 state-run bank chiefs. He has also asked for data on the credit flow to different sectors and an update on the liquidity situation, interest rates and growth in deposits and advances during 2007-08.

While a large number of public sector banks have finalised their accounts, many of them, including State Bank of India [Get Quote], the largest player in the country, are yet to announce their results.

On Tuesday, the Reserve Bank of India announced a fresh 25 basis point hike in the cash reserve ratio or the proportion of deposits, as part of its inflation combating drive.

Earlier this month, the central bank had announced a 50 basis point rise in the CRR. By the time the hikes come into effect, on May 24, over Rs 26,000 crore (Rs 260 billion) would have been mopped up. RBI has also made it clear that there is a need to moderate the credit and deposit growth rates.

"There is enough liquidity in the system and we don't see the interest rates increasing as of now. We will get a better view on the liquidity position in two to three weeks and know where the rates are moving. Two more CRR rounds are to take place. We are targeting a 25 per cent growth rate in disbursals," HDFC [Get Quote] managing director Keki Mistry said.

Dena Bank [Get Quote] CMD P Gairola said that he will wait for signals from the government before dealing with the interest rate situation. Corporation Bank [Get Quote] chief B Sambamurthy said, "We're in no hurry to decide. We'll wait and watch."

Though accounts are yet to be finalised, according to preliminary estimates, almost all the bank chiefs have assured themselves of the annual bonus as they have met the targets set out in the statement of intent signed at the beginning of the year.

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