Much as Finance Minister Pranab Mukherjee would like the public sector banks (PSBs) to hold their lending rates despite the tight money stance adopted by the Reserve Bank of India (RBI), PSB chiefs are not too sure whether the banks would be able to live up to his expectations.
Asked at an interaction with the media, following his review meeting with chairmen of PSBs here on Saturday, as to whether the monetary tightening measures would result in a hike in interest rates, Mr. Mukherjee said: “No, I don't think so. Banks are fully aware of it and they have taken note of it and they have adjusted their plans accordingly,” implying thereby that he expected the banks to maintain status quo as far as lending rates are concerned.
However, despite the Finance Minister's indications, Bank of India went ahead to announce a hike in its BPLR (benchmark prime lending rate) by 50 basis points, a move that would render a hike in the cost of existing housing, auto and education loans.
Even as a base rate floor lending rate system has replaced the BPLR mechanism from July this year, existing borrowers continue to be covered by the old system although a switch-over option is available to them also.
In recent days, quite a few PSBs have already raised both their lending and deposit rates while others are likely to follow suit. For instance, Punjab National Bank hiked its BPLR by 75 basis points to 11.75 per cent while Bank of Baroda, Corporation Bank and Oriental Bank of Commerce went in for a 50 basis points increase to 12.50 per cent.
The country's largest lender State Bank of India, however, has not taken such a step as yet, but may soon.
“I think there is an upward bias [on interest rates] that will take place,” SBI Chairman O.P. Bhatt said, while indicating that the hike would be 25 basis points at the least as most banks have effected a hike in the range of 25-75 basis points. “So I would put it [rate hike by PNB) at the extreme end. It cannot be more than that. It has to be less than that,” SBI Chairman said.
On the inflation issue, the Finance Minister expressed concern over the northward movement of food prices after a two-week respite. “Of course it [food inflation] is a concern,” he said, even as he sought to attribute the rise to the statistical glitch of “base effect”. Addressing the bank chiefs at the review meeting earlier, Mr. Mukherjee asked the PSBs to accelerate the financial deepening as it would otherwise constrain the full potential of the country's economy and would stand in the way of maintaining a high GDP growth trajectory.
He also advised the banks to constantly augment their capital base to be able to meet the needs of one of the fastest growing economies of the world.
