Bankers rule out rise in rates

The banking industry today discussed with Finance Minister P Chidambaram issues relating to tax concessions for asset reconstruction companies, mergers and acquisitions, credit growth, especially to the farm sector, and revision of bankers pay packages.

At the review meeting, the bankers also raised the issue of interests on bank deposits having become unattractive to depositors on account of tax. This had resulted in household savings moving to other short-term investments like equities and mutual funds.

While the bankers asked for reduction in the cash reserve ratio and release of funds from the market stabilisation scheme to ensure higher liquidity in the system, they ruled out any immediate hike in the interest rates, especially on the productive sectors.

However, the country's largest bank, SBI, said it was reviewing its interest rates. "We are reviewing interest rates (including home loans) and we will take a view shortly," AK Purwar, chairman, SBI said.

Ruling out an immediate hike in lending rates, PNB Chairman SC Gupta said, "The liquidity position in the system is getting tight. To meet the demand for credit, we need the government's support as liquidity is not enough."

A K Khandelwal, chairman, Bank of Baroda said, "We have to take a call on lending rates as deposit rates are rising." The finance ministry and the Reserve Bank are soon slated to come out with "hybrid instruments" that will enable banks to increase their capital and meet credit demand.