The country's leading bankers don't want any more policy rate hikes by the Reserve Bank of India.
Speaking at the Business Standard Banking Round Table in Mumbai on Monday, five of the six bank chiefs said 'no' when asked whether RBI should raise rates in the second quarter review of the monetary policy on October 25.
Bankers gave three broad reasons for their view.
First, early signs of a slowdown are becoming increasingly visible, with small and medium-sized industries already feeling the stress.
Second, long-term investment demand will take a hit as confidence has taken a hard knock in the absence of policy initiatives.
And third, the underlying strong domestic demand, which has kept the India story going, may have reached a tipping point.
The central bank has increased rates 12 times in the past 18 months.
The round-table was attended by State Bank of India chairman Pratip Chaudhuri, Bank of Baroda chairman and managing director M D Mallya, ICICI Bank managing director and chief executive officer Chanda Kochhar, Axis Bank managing director and chief executive officer Shikha Sharma, Citi India chief executive officer Pramit Jhaveri and Deutsche Bank India chief executive officer Gunit Chadha.
The bankers said in case RBI decided to hike the policy
"If RBI does a rate hike, interest rates have to be raised because the input price increase has to find a reflection in output rates," Chaudhuri said.
Chadha said it was inevitable banks would have to transmit some of the policy rate increase to the system.
Others said liquidity would be a key factor that would shape banks' strategy in deciding future interest rates.
Banks expect liquidity to dry up further.
"Whether the lending rates go up or not will depend on how the liquidity situation pans out.
"Liquidity will be the big thing to watch in the coming two months because we are entering the festive season," Kochhar said, adding the drying up of liquidity in overseas markets would have an impact on domestic liquidity.
Bankers said they were seeing a slowdown in loan growth. Even the festive mood is yet to reflect in loan demand.
On the other hand, as Sharma pointed out, there were signs of a slowdown in home and auto loan growth.
The overall mood on economic growth, however, was optimistic. Most bankers pegged growth at 7.5-8 per cent.
Bankers also don't see any large-scale increase in non-performing assets.
"Some large companies only need some hand-holding. Retail loans are yet to see stress on asset quality," Kochhar said.
