Huge capital inflows coupled with uncertainty over interest rates and the impact of US subprime mortgage crisis on the market were some of the key issues highlighted by bank CEOs at Thursday?s customary meeting with the Reserve Bank of India governor, YV Reddy, ahead of the half-year monetary policy review.
Among the bankers present were SBI chairman OP Bhatt, Bank of Baroda chairman and managing director, AK Khandelwal, ICICI Bank?s managing director and CEO KV Kamath, Bank of India CMD TS Narainasami and Citibank?s India CEO Sanjay Nayar.
The policy review is scheduled on October 30. Though details of the meeting were not available, bankers who spoke to FE after the meet said that there were possibilities of a hike in cash reserve ratio to curtail the excessive liquidity in the system.
Cash reserves, the cash that banks maintain with the RBI as percentage over net deposits, is currently at 7%. Bankers expressed concern over the slowdown in credit growth despite various measures taken by them.
Any increase in cost of funds arising out of the CRR hike is likely to be passed on to the customers while a few bankers are thinking of sharing the cost.
OP Bhatt said, ?The bank will have to absorb part of the burden and pass on the rest to customers.? Bhatt further said, ?Margins are under pressure as interest rates are getting firmer. The issue before us, at the moment, is how we should go about lowering lending rates.?
Bankers are keenly watching the developments in the international arena over the US subprime mortgage crisis and its impact on India.
Continuance of the credit growth despite steps taken by the banks to bring it down has become a baffling issue before the bankers. The credit growth is maintaining the same pace as it was at the end of the last financial year in March this year and hence ?we discussed what will be the trend in liquidity during the remaining part of the year as the situation has become peculiar on the topic,? Bhatt said.
Talking about the US subprime mortgage crisis, Bhatt said, ?We discussed about the international happening on the issue and their impact on India.? However, Bhatt made it clear that the bankers didn?t put any demand before the RBI to go for rate-cuts after the similar measure taken by the Federal Reserve of the US in the recent past.
