Amid a steep slowdown in credit offtake and an unexpected spike in deposits, bankers today urged the Reserve Bank of India (RBI) to hold the policy rates at the current levels and sought a clearer picture on the future interest rates and inflation scenario at its policy review next week.
"Credit growth has been too lax for some time now. So we want the monetary authority to send out a signal that there is a pause on rate tightening. Such a stance can send out the right signal to bankers as well as the industry. We have also urged RBI to come out with a clear statement on the future interest rate and inflation scenarios in the July 26 policy document, so that the banks and the industry can plan better," CEO of Indian Banks Association K Ramakrishnan told reporters.
He was talking to the media after the customary pre-policy meeting with RBI brass at Mint Road office here.
Prominent bankers, led by State Bank Chairman Pratip Chaudhuri, HDFC Bank's Aditya Puri, Bank of Baroda's MD Mallya and Bank of India's Alok Misra met deputy governor Subir Gokarn and aired views on the interest rates, credit and deposit growth, overall economic growth, stressed assets and other macroeconomic data ahead of the first quarter policy review on July 26.
In its attempt to tame inflation, the central bank has spiked its key rates a record 10 times since March 2010 whereby it has pushed up the short-term lending (repo) and reverse repo or borrowing rates by a massive 275 basis points.
Analysts are expecting another 25 bps spike on July 26 as inflation situation is still highly sticky.
With the provisional estimates for inflation for June at a double-digit mark at 9.44% and a recent hike in fuel prices, analysts and the industry are expecting further escalation in prices, and another bout of tightening next week by RBI.
Bank of Baroda Chairman and Managing Director MD Mallya, who is also chairman of IBA, warned of a steeper slowdown in credit growth. He said that as no new projects were being planned by the industry, it was unlikely that banks would see an uptick in advances in the current quarter as well.
However, he said, the industry would wait a while longer to decide whether to scale down the growth targets further.
He pointed out infrastructure as among the sectors that have seen lowest credit growth. Ironically, this was one of the most vibrant sectors last year, he said.
The head of the third largest state-run lender also warned that bankers could see more deterioration in the asset quality of SME advances going forward, if the overall industry scene remained cloudy as it is today.
On the liability front, the bankers in general have been witnessing reasonable growth in deposits, especially savings accounts.
Bank of India Chairman and Managing Director Alok Misra said it was a bit early to revise downward the industry's growth target, even as the early signals were not encouraging.
