Even as the Reserve Bank of India(RBI) is expected to continue to hike key rates ? repo and reverse repo ? to check surging inflation, bankers are meeting D Subbarao, governor of RBI on Tuesday, just after five days the new fiscal 2011-12 began, to know his mind on the possible action plans in 2011-12.
Repo rate is the rate at which banks borrow money from RBI and reverse repo rate is the rate at which RBI borrows money from banks.
Billed as the first discussion of the fiscal between RBI and bankers before the RBI announces its annual monetary and credit policy on May 3, the meeting is expected to free wheeling interaction on the issues of inflation, liquidity scenario, credit off take and deposit mobilisation.
KR Kamath, chairman and managing director, of Punjab National Bank (PNB), said the banks have already absorbed the 25 basis point hike in key policy rates announced by the RBI during the mid-quarter monetary policy review on March 17.
?However, banks will have to pass on any further hike in rates by the RBI to the customers,? Kamath said.
M Narendra, chairman and managing director of Indian Overseas Bank (IOB), said that the credit growth in the new fiscal was expected to be mute as as there was no big ticket financing like the banks? funding the 3G players in 2010-11.
?Though there will be mute credit growth there is no scope to reduce the lending rates,? he said.
HSU Kamath, chairman and managing director of Vijaya Bank said the rate movement is very much dependent on the inflation factor, which was yet to come under the comfort zone. ?In case RBI increase the rates, banks will have no choice but to pass it on to the customers,? he said.
In the mid-quarter policy announced on March 17, RBI had increased both repo and reverse repo rates under the liquidity adjustment facility (LAF) by 25 basis points each from 6.5% to 6.75% and 5.5% to 5.75% with immediate effect.
India?s food inflation based on the wholesale price index dropped again below 10% for the week ended March 19. Food inflation based on the wholesale price index had risen to 10.05% for the preceding week leading up to March 12 after remaining in a single digit for two weeks.
Subbarao had said policy action was expected to continue to rein in demand-side inflationary pressures while minimising risks to growth; and manage inflationary expectations and contain the spillover of food and commodity prices into more generalised inflation.
?Going forward, the overall liquidity situation is expected to move close to the comfort level of RBI although it is likely to come under some temporary pressure in the second half of March due to advance tax collections,? said Subbaro.