The Hindu Business Line : Bank chiefs looking to review interest rates

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Mumbai Feb 13 Lending and deposit rates are set to go up, with bank chiefs scheduling meetings of asset liability management groups to study the impact of the hike in cash reserve ratio (CRR) to six per cent.

The Reserve Bank of India's hike in CRR to six per cent from 5.50 per cent will squeeze liquidity, pressure net interest margins and dent profitability, according to bankers.

Banks will lose about Rs 2,200 crore in interest income in the current fiscal following the last two hikes in CRR. The RBI does not pay any interest on CRR above three per cent.

Dr A.K. Khandelwal, Chairman and Managing Director of Bank of Baroda, said that the hike in CRR was not unexpected. "We will now have to take a review of the lending rates. For the bank, the outgo on account of 50 basis points rise in CRR would be around Rs 500 crore."

Mr K. Ramakrishnan, Chairman and Managing Director of Andhra Bank, said: "Bank investment portfolios will require additional depreciation and profitability will be affected. Deposit rates will certainly move up and the bank has to take a close call on lending rates."

Bond prices are expected to drop forcing banks to mark to market their gilt holdings at lower prices.

Mr V.P. Shetty, Chairman and Managing Director of IDBI, said that there has been pressure on deposit rates irrespective of hike in CRR. "There is likely to be a correction in the interest rates on corporate lending. Lending at sub-PLR may stop."

He also said that call rates, which have been ruling at 6-7 per cent, will inch up in the near term.

Mr T.S. Narayanasami, Chairman and Managing Director of Indian Overseas Bank, said: "Lending will become more expensive and banks may go slow on credit expansion. However, the profitability of the banks may only be affected next fiscal as this fiscal is about to end."

ICICI Bank is expected to come out with a statement on Wednesday.

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