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Despite a Reserve Bank of India directive to cut lending rates, banks are expected to keep interest rates on home loans stable. | NO HURRY - RBI, in its mid term review of the annual policy statement, had asked banks to cut lending rates by rationalising their deposit rates.
- It has also expressed its concern about the disproportionate disbursal of credit as most banks parked their funds in government securities and other debt market instruments.
| The banking regulator, in its mid term review of the annual policy statement, had asked banks to cut lending rates by rationalising their deposit rates.
RBI has also expressed its concern about the disproportionate disbursal of credit as most banks parked their funds in government securities and other debt market instruments.
But, most banks seem to be in no immediate hurry to slash both deposit and lending rates.
Deposit rates are a sticky subject for public sector banks. Bank chiefs have submitted performance targets including that for the business (advances plus deposits) at the beginning of the year (2007-08).
These targets have not been revised. With credit offtake slowing down, the only way they can meet their business goal is by garnering deposits. Hence, a deposit rate cut by public sector banks seems unlikely.
“The ample liquidity in the system helped banks keep rates stable in the quarter January to March. Every year during this period rates peak. Interest rates will remain stable. We would let this quarter go by. We would have to analyse how the liquidity in the systems pans out to be following the tax outflows in March,” said Chanda Kochhar, deputy managing director, ICICI Bank.
Talking about credit growth, Kochhar said, “Credit is growing at a healthy 22 per cent. There may be some rebalancing of the book for banks. Retail for us is expected to grow at 15 per cent, while corporate credit is expected to grow upwards of 25 per cent. There is a strong investment pipeline.”
Currently, interest rates on long term deposits are hovering over the 8 per cent mark putting upward pressure on banks’ cost of funds, which in turn has led to a rise in lending rates. The high lending rates have affected private consumption expenditure which is evident from the latest RBI numbers.
The central bank data shows growth in personal loans has moderated to 20 per cent at Rs 81,451 crore as on November 23, 2007, as against 35 per cent growth at Rs 1,05,034 crore in the previous year.
The dip in the personal loans segment is led by a slowdown in housing loan portfolios of banks. Interest rates on home loans have increased to over 10 per cent, affecting demand.
The rising real estate prices have also had an impact on the loan growth. The housing loan portfolio of banks has grown at 15 per cent at Rs 32,424 crore as on November 3, 2007, as against 33.4 per cent at Rs 53,198 crore in the year-ago period.
Mohan Shenio, head treasury, Kotak Mahindra Bank, said, “In my view, banks would lower rates on deposits and loans only if liquidity in the system remains comfortable for a prolonged period plus the banks should be convinced that operative rate is the reverse repo rate.”
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