RBI signals to banks: No rate hike till March

The Reserve Bank of India has assured bankers that there would not be any rate hike till March. We are told by the RBI that it...

The Reserve Bank of India (RBI) has assured bankers that there would not be any rate hike till March. We are told by the RBI that it would keep its policy rates unchanged until 31 March,2010. So,I expect the interest rates will remain stable even until June this year a top banker from a public sector bank told The Indian Express here today.

Though bankers do not see any rise in policy rates such as repo and reserve repo as it would affect the fledging economic recovery,they hope the RBI will raise the cash reserve ratio (CRR) by 25-50 basis points in its forthcoming review of the annual monetary and credit policy on January 29 in a bid to check the ongoing inflation by sucking out liquidity.

While a marginal CRR hike will suck out the excess liquidity,we are not expecting any tweaking of policy rates, said the bankers at the Bankers Conference 2009-10 (BANCON 09-10) in Mumbai on Monday.

Bankers also said that though there was some liquidity overhang in the system,no credit offtake had been happening for the last one year or so. OP Bhatt,chairman,State Bank of India (SBI),the countrys largest bank said that the interest rate is likely to remain stable post the RBIs review of its annual monetary and credit policy for the third quarter on the 29th later this month.

The CRR should also not be increased at this point of time with a liquidity overhang in the system and less-than-expected credit growth, Bhatt said.

I dont think there would be any rise in the interest rates at a time when credit growth was not happening at the required level and there was a huge liquidity overhang. There are some banks that are still cutting interest rates on some of their products, said Bhatt while commenting on a series of rate-cuts as being effected by some of the private sector banks in the retail segments.

A delegation of the Indian Banks Association (IBA),comprising the heads of some of large banks,will meet the RBI top brass in Mumbai on January 14 to discuss their views on the forthcoming monetary policy.

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Bhatt said there could be consolidation in the sector,but the process is moving slowly. I believe that if you are going to provide world-class services to world-class companies,then most Indian banks dont have the size or the scale,the products or the technology to do it, Bhatt said.

Consolidation is to happen as a compulsion and it must be based on the theory of the best fit. The idea is to increase the balance-sheet and improve the line of business. Things to be seen include low CASA and large customer base. While six banks in the public sector are having government control of more than 65 per cent,there are five banks where the government control is less than 55 per cent, said Alok Mishra,CMD,Bank of India.

AC Mahajan,CMD of Canara Bank,said,In consolidation,size does matter. It was the Narasihaman committee which stressed for it. Three issues as pointed by the committee include competition,conversion and consolidation. While the first two issues have already been discussed well within the industry,the third issue is yet to be addressed properly. Risk management is also important. Commercial considerations should not be the purpose of consolidation.