Bankers say no to lowering lending rates

April 8th, 2009 - 7:58 pm ICT by IANS  

Mumbai, April 8 (IANS) Concerned over the rising non-performing assets (NPA) and high cost of deposits, India’s bankers Wednesday told the Reserve Bank of India (RBI) that there was not much room for lending rates to go down.
“If there is a sharper downturn, it can further impact the asset quality. Banks are looking at a lower rate of loan growth this year,” Indian Banks Association (IBA) chairman T.S. Narayanasami told reporters after meeting RBI governor D. Subbarao, ahead of the bank’s annual policy review April 21.

The bankers said it would be difficult for them to bring down lending rates unless the retail and bulk deposit rates declined.

“The cost of deposits is still high. This will have to come down first. Then only will the lending rates ease,” Narayanasami, who also heads Bank of India, said.

He, however, added that the banks now have sufficient liquidity “as the RBI has slashed its key rates”.

According to K. Ramakrishnan, chief executive of the IBA, the 5-percent provisioning mandated by the apex bank on the restructured accounts will burden the banks and impact their profitability.

The bankers also told the RBI that they expect the credit growth to moderate to 18-20 percent in the current fiscal, much lower than the 25-30 percent growth recorded in 2008-09.

State-run banks are considering a 50-75 basis point reduction in deposit rates in the next three weeks, which could result in reduction in lending rates by 50 basis point, Ramakrishnan said.

Canara Bank chairman and managing director (CMD) A.C. Mahajan, Punjab National Bank CMD K.C. Chakrabarty and IDBI Bank CMD Yogesh Aggarwal were also part of the delegation that met the RBI chief.

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