Bank chiefs are meeting Reserve Bank of India (RBI) governor D Subbarao on April 5 to discuss liquidity and rate issues. They expect further hikes in key rates ? cash reserve ratio, repo rate and reverse repo rate ? in the forthcoming credit and monetary policy to be announced by the RBI on April 20.
They will discuss with the RBI other macroeconomic issues including credit, deposit growth, inflation, and economic growth will also be taken up at the meeting.
They expect the central bank to raise the repo and reverse repo rates in the policy in order to curb surging inflation.
?I expect further hike in key rates to check inflation,?? said A C Mahajan, chairman & managing director , Canara Bank. However, the bankers have said they will wait for RBI?s annual monetary policy to decide on hiking interest rates. The bank chiefs intend to inform the RBI that credit off-take is yet to pick up and they would n?t want to raise lending rates immediately.
The RBI on March 19 raised the repo and the reverse-repo (short-term lending and borrowing) rates by 25 basis points to 5 % and 3.5 %t, respectively, to contain inflation. ?The liquidity is benign. I don?t think Subbarao will be rushing to raise rates now,?? said S A Bhat, chairman & managing director, Indian Overseas Bank.
?At the moment credit growth is not much. One needs to wait for sometime especially to see corporate loan demand. We expect credit growth at 18-19 % in FY11,? said M D Mallya, chairman and managing director of Bank of Baroda.
?Even if RBI hikes the repo and reverse repo rates by 25 basis points, I don?t expect prime lending rate (PLR) to go up. There could be some increase in the sub-PLR loans,? he added. Maintaining adequate liquidity of around Rs 40,000-50,000 crore will ensure that banks don?t face any problem once credit growth picks up, said a senior official of Indian Banks? Association (IBA),
The bankers have not yet increased their lending rates citing muted credit growth and abundant liquidity, limiting the effectiveness of the central bank?s policy moves.
Year-on-year bank loan growth was 16 % as of March 12. However with inflation spreading to non-food items, the RBI is likely to further tighten its monetary stance in its forthcoming annual policy, which may jack up interest rates, Citigroup said. ?With inflation getting a bit more generalised, we expect the RBI to raise rates once again in its policy on April 20 with a minimum additional 100 bps (one per cent) this year,? Citigroup Global Markets report said.