Credit quality still an issue: Bankers

While RBIs signal that rates have peaked is comforting,they dont see rate cuts in near term.

Bankers believe that the Reserve Bank of Indias signal that interest rates have peaked will be good for both customers as well as banks as it would result in their stabilisation.

However,they do not see a rate cut immediately and credit quality,too,is not expected to improve improve overrnight. MD Mallya,CMD,Bank of Baroda,said: Banks have been maintaining their loan rates even though the RBI had persisted with policy rate hikes in September and October.

Mallya points out that there are stress points in the system and,so,credit quality may not improve immediately. Just because the RBI has paused doesnt mean that things will change right away. But the pause will certainly boost the sentiment, he added.

Added MV Nair,CMD,Union Bank: While the pause signalled by RBI will help,credit quality depends on the environment and there are issues in sectors like textiles or power.

The good news,he says,is that most corporates have been able to pass on the higher cost of money. According to Melywn Rego,ED,IDBI Bank: The banking sector will start cutting rates only when the RBI starts lowering repo rates.This could happen in the first quarter of 2012.

Nair feels that interest rates appear to have stabilised,especially since deposit ratesthe main constituent of the base ratehave been stable.

Indeed,although the central bank had hiked the key repo rates by 25 basis points in late October, banks have been offering discounts to woo customers at a time when loan growth has moderated significantly.

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Our bank did not hike rates on the last two occasions when RBI hiked policy rates, said KR Kamath,CMD,Punjab National Bank (PNB). Kamath believes that interest rates might have stabilised though he doesnt see the central bank cutting policy rates soon.

A meaningful fall in lending rates will begin only after banks are able to reduce their deposit rates, he said.