The Hindu Business Line : Chidambaram to meet bankers, RBI officials

Bangalore April 5 Faced with a chorus of protests from the corporate sector, the Finance Minister, Mr P. Chidambaram, has called for a meeting of bankers and top officials of the Reserve Bank of India for a review of the recent monetary tightening measures.

Top bankers said this was one of the rare occasions when the Finance Minister has called for a meeting with bankers on the eve of the lean season credit policy scheduled for April 24.

Bankers said that none of them was expecting any rollback in the RBI monetary tightening measures.

A top banker said, "At best, we may see the interest on CRR balances being restored."

Last week-end, the RBI had hiked the CRR to 6.5 per cent in two phases, repurchase (repo) rates to 7.75 per cent (Repo is the process of banks placing securities with the RBI for raising short term liquidity) and halved the interest rate on CRR balances to 0.5 per cent. The moves were ostensibly taken to rein in inflation that has stubbornly remained above 6 per cent.

Hike in lending rates

However, almost all the banks have pointed out to Mr Chidambaram that the RBI's drastic inflation control measures would lead to hikes in lending rates. This would consequently hit credit availability.

In fact, many banks have warned of competition for funds between industry and farm sectors would resume after a gap of five years, as the former begins to activate its credit lines. This, bankers said, would further add pressure to the lending rates.

`Retrograde step'

Already, many of the banks have hiked their prime lending rates to anywhere between 11.5 and 13 per cent, after the hike in the repo rate and hike in CRR balances.

Besides, bankers said the halving of interest on CRR balances was a retrograde step that could lead to compression in incomes. In order to offset the loss of income, they would resort to alternatives for defending their net interest incomes (NII).

Lending rate hikes were one option. The move to defend NIIs would also hit government borrowings, they added. This move was already evident from the sharp 30 basis point increase in the ten-year yield to maturity from last weekend's googly from the RBI.

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