Finally there could be some good news from the banking industry. Public sector banks may look at reducing interest rates if inflation levels continue to remain below the 5% benchmark set by the Reserve Bank of India. However, a lot would depend on the central bank and its stand in the monetary policy review slated later during the month.
Bankers said that there could be a drop of 0.25-0.50%, if inflation remains at around the current level. A decision in this regard would, however, be taken only after a month or two. It may be noted that RBI governor YV Reddy also held a meeting with finance minister P Chidambaram ahead of his monetary policy review.
Prakash P Mallya, chairman and managing director, Vijaya Bank said that deposit rates have also started downward journey. He also pointed out that the money supply situation was comfortable and this was primarily due to the overall rising income levels and continued FII inflow. Reiterating the same, K Raghuraman, executive director, Punjab National Bank, said that banks would start taking a decisive call on interest rates only after the monetary policy review.
Banking industry sources said that the apex bank should look at other measures like market stabilisation fund to control the money supply.
?Hiking cash reserve ratio or repo rate is not the only solution to handle this problem? an industry expert said.
Government sources also told FE that there are enough indications of lower interest rates.
At present, the CRR is at 6.25% while repo rate is at 7.75%. A banking industry source said that banks would take a call on the interest rates only if there is a cut in the CRR or repo rates. ?If there is no cut, it may be difficult for the banks to bring down the nterest rates as they would be required to maintain their margins as well,? sources revealed.