Interest rate hike might hit banks: PNB chief

New Delhi, Jan 2 | Updated: Jan 3 2006, 06:27am hrs
Increase in interest rate on deposits, coupled with the unchanged lending rates, may affect the profitability of banks, the chairman and managing director of Punjab National Bank (PNB), SC Gupta said here on Monday.

Addressing mediapersons at the inauguration of PNBs North Delhi zonal office, Mr Gupta said, There will be pressure on profit as interest rate in deposits have gone up. The interest rate on deposits for one year is more than 7% now.

PNB, like many other major banks, has increased their domestic deposit rates. They have categorically said that there would be no hike in lending rate across the board. Banks were forced to increase the deposit rates with the hike in reverse repo rate by the Reserve Bank of India.

Mr Gupta said that the soft interest rate regime would continue, irrespective of the inflation rate. The banks lending rates would remain stable till March 2006.

He also said that with credit demand significantly picking up, banks would require resources. Banks may face some liquidity pressure as the demand for liquidity would be substantially high from both retail and corporate side in the January to March quarter of the fiscal, he added.

However, it is unlikely to be a permanent problem as the central bank has various instruments like CRR and MSS to manage it.

Meanwhile, PNB has reorganized its zonal structure to handle its businesses better. It has set up seven additional zonal offices in the North Delhi zone, Delhi and Punjab (North) zone among others. With this, PNB will have 25 zonal and 48 regional offices.The newly constituted North Delhi Zone will comprise 76 branches, out of which 70 branches have core banking solutions.