Banks not to hike rates till monetary policy review

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SME Times News Bureau | 06 Apr, 2010
Commercial banks will maintain a status quo on interest rates till such time the Reserve Bank of India (RBI) reviews its monetary policy on April 20, an umbrella organisation of the banks said in Mumbai on Monday.

The Indian Bank's Association (IBA) conveyed this at a meeting with the central bank where the focus was on how to tame inflation while ensuring that the recovery of the country's economic growth is not hampered.

"We said there will be pressure on margins in terms of savings bank rate as well as in case the cash reserve ratio goes up, as there is a cost involved," said M.V. Nair, chairman of the association, which has most of the private and state-run commercial banks as members.

"But we have assured (the RBI) that we will look at the interest rates only after the monetary policy," Nair told reporters after the meeting.

Those who attended the meeting included representatives of State Bank of India, Punjab National Bank, ICICI Bank, Canara Bank, Bank of Baroda, IDBI Bank, Union Bank of India, HDFC Bank, Standard Chartered Bank, Citibank and Federal Bank.

In a bid to tame the price rise by sucking excess money out of the system, the RBI hiked two major policy rates by 25 basis points each on March 19 in a move that the industry said could impact growth.

The repo rate was revised to 5 percent and the reverse repo rate to 3.5 percent, marking an end to the easy money policy regime.

The repo rate is the interest charged by the RBI on borrowings by commercial banks. A hike in the rates makes cost of borrowing costlier for the commercial banks. The reverse repo rate is the rate at which the central bank borrows money from commercial banks. A hike in this rate makes it more lucrative for banks to park funds with the RBI.