MUMBAI, February 15: Senior bankers are vertically divided on whether the prime lending rates will go southwards with the return of liquidity into the system pegged at 11 per cent.While a section of bankers firmly believe that the interest rates will start heading southward soon, others insist that interest rates will not ease until the Reserve Bank of India reduces the bank rate and inflation rate startes declining.
The debate was sparked off early last week when State Bank of India chairman MS Verma said that banks would trim their prime lending rates (PLRs) within the next six weeks.
"PLR will come down," Verma had said. "Call rates will rule at around 9-10 per cent and there will not be any problem on the liquidity front," he added.
The chairman of Union Bank of India and the Indian Banks' Association, AT Pannir Selvam has also voiced the same opinion and said that lending rate would come down. "There is no liquidity problem. We will bring down the lending rates by April," he said.
Both Vermaand Selvam feel that the Reserve Bank of India might roll back some of the tight money measures announced in January.
Other bankers, however, do not share the same sentiment. Says S Solomon Raj, managing director of IndusInd Bank, "It is unlikely that interest rates will settle to lower levels so soon unless there is a cut in the bank rate. The rates will continue to rule at the same high levels for some more time."
Ashish Sen, managing director of private sector Centurion Bank, feels that interest rates will continue to rule at the current level. "Interest rates will remain stable at the present level. There will be some pressure on interest rates during the last fortnight of the year due to a number of factors," he said.
Centurion Bank will hike its prime lending rate as well as deposit rates in the next few days.
In contrast, Bank of India CMD MG Bhide feels interest rates will have to go down. "Since our trading partners have lower interest rates than ours, we must look to a southward movement ofinterest rates. The RBI measures are only temporary in nature and will be rolled back soon. Now that the markets have started integrating, there will be a fall in interest rates," he said.
Paresh Sukhthankar, vice-president (credit & market risk) at HDFC Bank feels that while the markets will remain at easy levels up to the second week of March, there will be a general tightening of interest rates during the last fortnight of the financial year. "Corporates will make huge advance tax outflows which will lead to a tightening of interest rates", said Sukhthankar.
On January 16, the RBI introduced a string of tight-money measures to jack up interest rates and squeeze liquidity out of the system after the rupee hit a record low of Rs 40.45 to the dollar.
The central bank hiked the CRR by 0.5 per cent and bank rate by two percentage points which sent call rates zooming to 140 per cent the very next day. In an immediate response to the measures announced by RBI, banks announced a hike in their lendingrates.
While the bigger public sector banks hiked their PLRs by just one percentage point, other PSU banks hiked their lending rates by 1.5 per centage points. Most private sector and foreign banks increased their lending rates by two percentage points.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
