The Hindu Business Line : `Near-term hike in interest rates unlikely'

BANKS have ruled out any change in lending rates in the short-term despite the hike in the cash reserve ratio by the Reserve Bank of India last weekend.

Speaking to presspersons on the sidelines of the FICCI banking conference here on Tuesday, the Chairman of the State Bank of India, Mr A.K. Purwar, said, "The CRR increase will have no impact on the lending rates."

Mr K.V. Kamath, Managing Director and Chief Executive Officer of the ICICI Bank, also said "there will be no change in the lending and deposit rates in the immediate term''.

The bankers said that the banking system was still flush with liquidity to the extent of Rs 40,000 crore. The CRR hike, which would impound only about Rs 8,000 crore, would have very little impact on interest rates, they said.

Bankers also ruled out any change in the deposit rates immediately. One of the main reasons was that even at the low interest rates prevailing currently, banks were flush with deposits.

Deposit accretion was Rs 7,900 crore for the week ended August 27, Of this, time deposits alone rose by over Rs 5,000 crore.

Both the bankers said that the credit and investment outlook continued to remain positive. This was especially after the large non-food credit offtake during the last few months.

However, both Mr Purwar and Mr Kamath refused to speculate on the possibilities of future increase in interest rates, especially in view of the rising inflation and hardening yields in the bond markets.

Mr Purwar, who spoke at the conference, said that the SBI had tied up with HDFC and the Credit Information Bureau of India Ltd for building better information on credit. This, he said, would eventually help reduce the delinquency rate and control the build-up of non-performing loans in the banking sector.

Mr Kamath, speaking at the conference, emphasised the socio-economic responsibilities of banks.

Referring to the impact of technology on banks, he said, technology and globalisation had transformed the fundamentals of the banking business in the country.