The Hindu Business Line : Bankers undecided yet on rate cut moves

Oct. 24 There were mixed reactions among bankers to the revision of rates of interest on advances. While some suggested there could be an immediate downward revision, some others preferred to wait and watch.

“We will take a call on revising the interest rates at our board meeting scheduled on October 31. We might consider lowering it by about 100 basis points,” said Mr S.K. Goel, Chairman and Managing Director, UCO Bank. He felt that there could be downward revision in interest rates on deposits in certain specific maturities keeping in view the cost of funds.

Talking about the credit growth, Mr Goel said, the bank was within the credit growth target of 18-20 per cent set by the RBI and had not resorted to any kind of aggressive lending activities.

According to Mr K.R. Kamath, Chairman and Managing Director, Allahabad Bank, there might not be any immediate revision in interest rates on advances. “Deposits form bank’s basic raw material and interest rates on deposits are still ruling high. At the present level of inflation, it may not be possible to revise downward the deposit rates and therefore the lending rates,” he said.

However, Mr Kamath felt that there could be some relief on interest rates on advances if banks were able to curtail the high-cost bulk deposits, procured at about 12-12.5 per cent.

Mr M.V. Nair, Chairman and Managing Director, Union Bank of India, said, that liquidity in the system is reasonable. On interest rate cuts, Mr Nair said the situation has to be carefully handled and therefore it is tough to give a time frame on the rate cuts. With the growth indication of 7.5 to 8 per cent given by the RBI, the domestic financial system is quite good and robust in spite of falling stock market which is a reaction to global cues, he said.

Good decision

Mr R.S. Reddy, Chairman and Managing Director, Andhra Bank, said “Keeping the interest rates unchanged is a good decision of the RBI in the current context. It is sensible as it had taken a host of measures to infuse additional liquidity in the market. Now, there is no emergency to infuse additional liquidity. The RBI is monitoring the situation closely and hence can take further measures as and when required.”

Ms Renu Challu, Managing Director, State Bank of Hyderabad, said “RBI’s decision to keep the rates unchanged is in line with the current market situation. The liquidity position is fine at this moment. Freeing the liquidity speedily has its own pit-falls and theRBI, it appears, wants to wait before taking any measures.”

The Chairman and Managing Director of Corporation Bank, Mr B. Sambamurthy, said that the bank will wait for sometime before taking any decision on interest rate cut.

On the policy review, he said the RBI Governor was emphasising on financial stability in the review. Of course, a lot of things were already done earlier, he said.

The Chairman and Chief Executive Officer of Karnataka Bank Ltd, Mr Ananthakrishna, said that immediate need for further measures was not found in the Policy review. Most of the measures have already been taken, he said.

Asked if the banks will go ahead with interest rate cuts, he said the cut may not be immediate.

“Repo rate was cut recently and a little bit of liquidity was made available. The situation to cut interest rate has not come,” he said, adding that the cost of funds is continuing to be a bit high. “Everybody is accepting deposits at a little higher rate .”

Chambers reactions

According to Mr P.R. Agarwala, President, Bharat Chamber of Commerce, the focus of the mid-term review on key areas such as liberalisation of foreign exchange transactions, relaxation in interest rate ceilings on NRI deposits, strengthening the supervisory framework in terms of cross-board supervision are all welcome measures.

However, there should have been a further cut in repo rate, he said.

Mr Sandip Sen, President, Bengal National Chamber of Commerce and Industry, said, “With the spectre of recession threatening to disrupt the rhythm of normal economic development, RBI should have gone for cuts in interest rate and SLR.