Leading bankers do not foresee any rise in the interest rates at least for the next six months and want the Reserve Bank of India (RBI) to keep the monetary stance unchanged in its policy review due later in the month.
While State Bank of India Chairman O. P. Bhatt expects the interest rate to remain stable till June-end, Corporation Bank chief J. M. Garg wants the RBI to keep the key policy ratios and rates unchanged.
The RBI is slated to announce its third and last quarterly review of the monetary policy of this fiscal on January 29, during which it will endeavour to draw a balance between the conflicting objectives of pushing economic growth and curbing the spiralling inflation.
Despite rising inflationary pressures, there would be no increase in the interest rate on loans in the next six months because of surplus liquidity in the market and rising deposits, Mr. Bhatt told PTI. The ballooning food inflation and advancing wholesale price-based inflation may soon force the RBI, which unfolded its first phase of monetary stimulus exit by restoring the SLR (statutory liquidity ratio, which is the percentage of deposits banks have to park in government bonds) to the mandatory 25 per cent level from 24 per cent, in the October policy review.
Even if the apex bank tightened money supply in its January policy review or even before, it would not result in a spike in the key interest rates because there was ample liquidity, Mr. Garg said.
With surplus liquidity in the system, a hike in the cash reserve ratio, which is the percentage of amount banks should park with the RBI, will help mop up the excess money from the system, Corporation Bank chief pointed out.
With a substantial recovery from the economic slowdown expected in 2010, bankers also expect a healthy pick-up in bank credit growth. “As we move ahead, when we shun the impact of the slowdown, I expect bank credit growth to revive considerably, which may result in an upward movement of lending rates as well,” said Bank of Baroda Chairman and Managing Director M. D. Mallya.
Oriental Bank of Commerce Chairman and Managing Director T. Y. Prabhu echoed the view saying the industry is poised for a healthy revival in the next year and corporate demand is likely to go up in the next quarter.
“We can see corporates coming back with their project proposals as the economic activities are picking up. The pick-up is already happening. This would only go better in the months ahead and I am quite optimistic about the New Year,” Mr. Prabhu said.
