About 75 per cent of the banks surveyed expect the interest rate to increase by 5 basis points, whereas the remaining expect it to go up by one percentage point.

Our Bureau

Mumbai, Oct. 3

BANKS are expecting a rise in interest rates, with the Reserve Bank of India's quarterly review of the Monetary Policy around the corner.

This anticipation is reflected in the bond prices, which seem headed downwards, prior to the policy. A similar response is also seen in a survey conducted by the Federation of Indian Chambers of Commerce and Industry.

The survey was conducted among 55 banks including 28 public sector banks, 19 private sector banks and eight foreign banks.

In the survey, 64 per cent of the participants said they foresee a rise in interest rates in the future. Out of these, 74 per cent expect the interest rate to increase by 5 basis point, whereas the remaining expect it to go up by one percentage point.

Around 62 per cent of the participants said the increased rates are likely to have an adverse impact on corporate sector lending to some extent, especially the AAA-rated borrowers.

A large number of participants felt the RBI's guidelines on ownership and cross holding in private banks need to be relaxed. As per the guidelines, no single entity or group can hold more than 10 per cent of paid-up capital and no private sector bank can have more than five per cent stake in other private banks. Around 48 per cent of the overall participants and 67 per cent of private banks asked for the guidelines to be relaxed.

Confirming that the retail route is the fastest way to grow, 53 per cent of the banks said they intended to increase their retail portfolio by more than 25 per cent in 2005-06.

The UAE proved to be the most preferred location for overseas expansion, followed by China, the UK, the ASEAN countries and the US.

Seventy five per cent of the foreign banks that participated in the survey expressed complete dissatisfaction with the RBI's roadmap for foreign banks.

(This article was published in the Business Line print edition dated October 4, 2005)
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