"We do not rule out a cut in CRR. If the RBI wants to push the Government's borrowing programme in the first half, it needs to bring down the CRR level. Since there is enough liquidity in the system now, the central bank may effect the CRR cut towards the end of the first quarter," said another banker. The system is flush with liquidity now as the Reserve Bank of India has embarked on a sterilisation drive by buying out dollars from the market.

For every dollar the central bank buys, anequivalent amount of rupee is pumped into the system. Moreover, there has been no sign of credit offtake yet despite the rate cut in the first week of March.

Bankers are resisting the rate cut fearing that a cut in lending rates will hit their bottomlines hard even though the finance ministry and industry bodies like the Confederation of Indian Industries (CII) have been making a strong pitch for a cut in lending rates. Bank of India executive director S Gopalakrishnan said: "In order to activate industrial production a reduction in interest rate is expected with a corresponding cut in deposit rates.''

1However, a majority of the bankers feels that bringing down the deposit rates will be an extremely difficult task. "We have already cut the deposit rates and there is not much of scope to pare it further. If we are forced to cut the deposit rates again, the mutual funds will take away bank deposits," said the chairman of a big nationalised bank. "The spreads have already come under tremendous pressure.Unless the disintermediation cost comes down, it will be an extremely difficult task to keep our bottomlines intact. We will not be able to survive if we are forced to bring down the lending rates," said another banker. Industry analysts feel interest rates on bank deposits cannot go down in isolation. "The Government must bring down the rates on provident fund (PF) and public provident fund (PPF) to create an environment for a low interest rate regime. The issue needs to be addressed at the political level. The RBI has nothing much to do at this stage," said one senior analyst with a foreign brokerage. The Centre had brought down the interest rates on small savings last year but left the rates on PF and PPF untouched. Said Central Bank of India chairman KC Chaudhury:

"We want stability in interest rates. The Reserve Bank has taken steps to realign the interest rates and we expect the forthcoming credit policy to echo the sentiments of the central bank to keep interest rates stable." A Dena Bank seniorexecutive said: "As the central bank has recently cut the interest rates, there is not much likelihood of a further cut in the forthcoming policy. However, we expect a cut in the pre-shipment and post-shipment export credit by 100 basis points."