Hike in rates not called for: IBA chief

The industry is surprised over the State Bank of India (SBI) hiking interest rates at a time when there is adequate liquidity in the system.

"The rise in interest rates was not called for looking at the liquidity overhang," said Indian Banks' Association (IBA) chief executive H N Sinor. There is over Rs 44,000 crore outstanding in the banking system today.

Bankers are of the view that interest rates will remain stable at least for the next two months with oil prices having stabilised and the bond market having cooled down.

Finance minister P Chidambaram, during his meeting with bankers on Saturday at IBA's annual general meeting, said: "We will like them (interest) to be stable as stated by the Reserve Bank of India governor Y V Reddy."

Bankers said that there is no need to touch interest rates and as such competition is unlikely to follow in the foot-steps of SBI.

SBI chairman A K Purwar had told Business Standard on Saturday that, as of now, there should be no hike in interest rates. Yet the bank hiked the home loan rates on Saturday evening following the recent shift of home owners to fixed rate loans.

Though majority of bankers feel that interest rates will stabilise in the short-term, the RBI's annual report seems to be preparing the market for a rise in rates in line with global developments. Some bankers have changed their stance and feel that interest rates could harden by about 25-50 basis points in short-term.