Bankers want pause in interest rate hike

RBI has already raised rates ten times

They have urged for a clear forward looking statement on interest rates when the RBI convenes its Board meet next week, said IBA Chief Executive K. Ramakrishnan here.

Ramakrishnan led the select bankers and met RBI Deputy Governor Subir Gokarn at a meeting this morning to give their views on interest rates, credit and deposit growth, economic growth, bad loans and other macro-economic parameters ahead of the first-quarter policy review.

It may be noted that the central bank had raised interest rates 10 times so far since March 2010 to combat the spiralling inflation, which has showed no signs of abating as yet.

The apprehension in the banking circles that RBI may resort to rate hike again next week, which may not augur well for the economy from growth perspective.

The bankers included State Bank chairman Pratip Chaudhuri, HDFC Bank's Aditya Puri, Bank of Baroda MD Mallya and Bank of India's Alok Misra.

In its attempt to tame inflation, the central bank has spiked its key rates a record 10 times since March 2010 whereby it has pushed up the short-term lending (repo) and reverse repo or borrowing rates by a massive 275 basis points.

Analysts are expecting another 25 bps spike on July 26 as inflation situation is still highly sticky. With the provisional estimates for inflation for June at a double-digit mark at 9.44 percent and a recent hike in fuel prices, analysts and the industry are expecting further escalation in prices, and another bout of tightening next week by RBI.

Bank of Baroda Chairman & Managing Director M D Mallya, who is also IBA chairman warned of steeper slowdown in credit growth.

He said as no new projects were being planned by the industry, it was unlikely that banks would see an uptick in advances in the current quarter as well.

However, he said, the industry would wait a while longer to decide whether to scale down the growth targets further. He pointed out infrastructure as among the sectors that have seen lowest credit growth. Ironically, this was one of the most vibrant sectors last year, he said.

He also warned that bankers could see more deterioration in the asset quality of SME advances going forward, if the overall industry scene remained cloudy as it is today.

On liability front, bankers in general have been witnessing reasonable growth in deposits, especially savings accounts.

Bank of India Chairman & Managing Director Alok Misra said it was a bit early to revise downward the industry's growth target, even as the early signals were not encouraging.