Ficci survey sees it rising

Indian banks and financial institutions see an upward shift in the interest rates in the short to medium term.

A Federation of Indian Chambers of Commerce and Industry (FICCI) survey of 75 banks and financial institutions says 48 per cent of the respondents expect interest rates to rise within the next six months, while 37 per cent see a rise within the next three months.

The banks cited rising inflation in India and global developments such as hardening of interest rates worldwide and rising oil prices as the primary reasons for this.

As many as 72.4 per cent respondents see rates rising due to inflation, while 69 per cent said global rise in interest rates and the flare up in crude oil would be why rates would rise in India. Others said a revised credit demand because of an economic boom and change in money supply would lead to the rise in rates.

If interest rates rise, 62 per cent of public sector banks say that their balance sheets' will be adversely impacted because of the ensuing decline in treasury profits. While 73 per cent of private and foreign sector banks, however, will be able to accommodate this decline.

The survey showed that the combined average growth in net profits of public sector banks in our survey rose by 59.5 per cent, whereas the combined average growth in net profit of private and foreign banks covered in our survey rose by 36.3 per cent and 23.3 per cent respectively in the year.

The banks have reported higher advances over the previous year, with 82 per cent have reported higher growth in advances this fiscal compared to last year.

Profitability per employee has increased every year for the last 3 years for all banks including public sector banks, which have reported this figure in the survey.

Close to 81 per cent of our respondents expect the growth rate in this fiscal to be between 10 per cent and 20 per cent.

On the risk management front, banks say that the present system does not compare favourably with the rest of the world with 76 per cent of our respondents claiming so and 55 per cent say that the present hedging mechanisms in India are not adequate. Around 97 per cent respondents favour the introduction of interest rate derivatives.

Meanwhile, 55 per cent of our respondents claim that Indian banks are unprepared for shifting to Basel II norms by 2006. 90 per cent of the bankers and financial institutions perceive that the capital requirements under the Basel II framework will increase.

On non-performing assets (NPA), 43 per cent of the banks say that after the adoption of the 90-day norm, NPAs will go up by between 0 and 5 per cent of total balances, nearly 47 per cent claim that the increase will be between 5 per cent and 10 per cent.