Banks feel pressure on short-term interest rates

New Delhi, Jan 18 | Updated: Jan 19 2007, 05:49am hrs
Ahead of RBIs review of credit policy this month-end, the Bank of India (BoI)s chairman M Balachandran on Thursday said there is pressure on short-term interest rates because of recent hike in cash reserve ratio (CRR) and overall increase in cost of funds.

There is bound to be pressure on short-term rates as resources are available at higher costs, Balachandran told reporters on the sidelines of a seminar on micro-finance. Resources were available to meet growing credit needs, but at higher costs, he added.

The central bank will announce its credit policy review on January 31. With inflation crossing its benchmark of 5.5%, banks are expecting further hike in interest rates.

Balachandran said so far as his bank was concerned, there was no dearth of resources for productive sectors like corporates, SMEs and even genuine housing demand. He added there was no immediate plan to raise the remaining $500 million through medium term notes (MTN) from the overseas markets.

The bank had earlier received RBI permission to raise $1 billion from the overseas markets and has already raised half of it.

Recently chairman of the countrys largest bank, SBI, OP Bhatt said interest rates have more or less peaked and there was slight pressure on liquidity.

Bankers are hopeful that with the government deciding to remove the sealing on floor rate of statuary liquidity ratio (SLR), and empowering RBI to take decision in this regard, the apex bank may not hike interest rates.