Bankers blame unhealthy competition for weak system

Reports from the 18th annual general meeting of IBA in Mumbai.

Senior bankers have blamed an indisciplined competition for the lowering of leading rates and rising deposit rate structures.

CEOs of close to a dozen commerical banks, contacted by Business Standard at the Indian Banks' Association's annual general meeting on Saturday were unanimous in condemning unhealthy competition for the state of affairs in the financial system.

Intense competition between banks in lending amounts at much lower interest rates is taking a toll on the overall structure of lending and deposit rates, said V K Chopra, chairman and managing director of Corporation Bank.

"A borrower gets a quote from one bank and then approaches another for a bargain. Banks encourage bargaining by falling prey to such pressures from customers," said M S Kapur, chairman of Vijaya Bank.

"The general expectation is that interest rates on loans are south-bound, whereas the rates on deposits are expected to rise. Unhealthy competition is destroying financial discipline within the system. These factors are adversely affecting net interest margins of banks, which will prove to be detrimental to the interests of the banking industry," Kapur added.

O N Singh, chairman of Allahabad Bank said movement in interest rates will be governed by the liquidity scenario and the demand for credit.

"In the short term, interest rates look stable. As far as the deposit rates are concerned, it depends on the decision of the individual banks," said V P Shetty, chairman of Industrial Development Bank of India.

"As the finance minister has said, interest rates are benign. But interest rates may witness some movement by December," said K N Prithviraj, chairman of Oriental Bank of Commerce.

Interest rates look stable in the short-term, though there is a possibility of a 25 basis points rise, said Ananthakrishna, chairman of Karnataka Bank.