Banks to up lending rates if RBI hikes key rates in April policy

With the economy on the upswing again,bank credit growth is expected to touch 20-22 per cent soon across the segments...

With the economy on the upswing again,bank credit growth is expected to touch 20-22 per cent soon across the segments,which could push up inflation further,according to senior bankers who met top Reserve Bank of India (RBI) officials here on Monday. Bankers expect to hike their lending rates on the back of an expected rise in interest rates by the RBI.

Bank chiefs told reporters after a scheduled meeting with the RBI on Monday ahead of its credit policy due on April 20,their margins were already under pressure and a rate hike would be difficult to swallow. If the RBI hikes the CRR further (the cash banks have to compulsorily keep aside from lending) in the annual policy,then lending rates could rise as costs for the banks would go up, said M V Nair,chairman and managing director of Union Bank of India. He said bank margins were already under pressure because of the new system of daily calculation of rates on saving deposits. Nair is also the chairman of the Indian Banks Association,the apex body of the banks.

Bankers said they had expressed concern over surging inflation and the possibility of a rise in bad loans in the industry particularly from the restructured assets. Nair explained that that inflation was a matter of concern. Numbers are higher than what the RBI has projected. The general consensus is that there will be reasonable liquidity to support credit growth. Credit growth which had dipped below 10 per cent in 2009 has now recovered and is around 16 per cent level also the RBIs target for the last fiscal.

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The RBI would have to step in with monetary policy tools to stem inflationary pressures. M Venugopalan,managing director and CEO,Federal Bank said credit growth in the industry,which had started to pick up,would improve further by the second quarter of this fiscal.

Bankers expect the RBI to raise CRR by 0.75 per cent hike in CRR to 5.75 per cent on April 20. The bank has already begun exiting the easy money policy in March,raising repo and reverse repo rates (rates at which banks borrow and lend with RBI) by 25 basis points each. Nair said none of the bankers,who were present during the meeting,was contemplating a hike in lending rates as the liquidity in the system was reasonably good. There is a general consensus that the GDP growth might be at around 8.5 per cent.

The bankers present at the meeting included SBI chairman OP Bhatt,chairman,ICICI bank MD and CEO Chanda Kochhar,HDFC Bank Managing Director Aditya Puri,Bank of Baroda CMD MD Mallya,IDBI Bank CMD Yogesh Aggarwal and Canara Bank CMD A C Mahajan.

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