Now banks want RBI to halt rate hikes

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SME Times News Bureau | 19 Jul, 2011
After India Inc.'s repeated demands, it is now the country's bankers who have urged the Reserve Bank to hold the policy rates at the current levels to arrest steep slowdown in credit offtake and an unexpected spike in deposits.

"Credit growth has been too lax for some time now. So we want the monetary authority to send out a signal that there is a pause on rate tightening. Such a stance can send out the right signal to bankers as well as the industry," CEO of Indian Banks Association K Ramakrishnan told reporters on Monday.

"We have also urged RBI to come out with a clear statement on the future interest rate and inflation scenarios in the July 26 policy document, so that the banks and the industry can plan better," he added.

He was talking to the media after the customary pre-policy meeting with RBI brass at Mint Road office in Mumbai. The meeting was between RBI top officials and the chiefs of both public as well as private sector banks on to take stock of the business environment before announcement of the first quarter policy review.

Prominent bankers, led by State Bank chairman Pratip Chaudhuri, HDFC Bank's Aditya Puri, Bank of Baroda's MD Mallya and Bank of India's Alok Misra met deputy governor Subir Gokarn and aired views on the interest rates, credit and deposit growth, overall economic growth, stressed assets and other macroeconomic data ahead of the first quarter policy review on July 26.

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.

A higher repo, the rate at RBI lends to lenders, raises the banks' borrowing costs prompting them to raise interest rates for final home, auto and corporate borrowers. A higher reverse repo — the rate at which RBI absorbs excess cash — means it would suck cash from the system to stymie demand and cool prices.

RBI is scheduled to review the monetary and credit policy on July 26.

A recent poll of bankers, fund managers, analysts, senior company officials and insurance company chiefs viewed that the RBI was likely to hike key policy rates by a 25 basis points (bps) in its upcoming policy review.