Finance Minister Pranab Mukherjee today said the public sector banks (PSBs) would hopefully continue with their low interest rate regime. But bankers said an increase in interest rates was inevitable. No,I dont think so (that rates will increase) because banks are fully aware of it and they have taken note of it. They have adjusted their plans accordingly, Mukherjee told reporters when asked about the impact of the Reserve Bank of Indias (RBI) move to tighten monetary policy. He was talking to reporters after a review meeting of public sector banks (PSBs) and financial institutions. But,many PSBs have already raised their deposit rates and lending rates for existing borrowers while others have indicated that they will be doing it soon. The countrys largest lender SBI chairman O P Bhatt said,I think there is an upward bias (on interest rates) that will take place. He said that most banks have raised interest rates in the range of 25-50 basis points with Punjab National Bank (PNB) raising the rate to the extent of 75 basis points. So I would put it (hike in interest rates by PNB) at the extreme end. It cannot be more than that. It has to be less than that, Bhatt said. While Punjab National Bank (PNB) raised its benchmark prime lending rate (BPLR) by 75 basis points to 11.75 per cent,Bank of Baroda,Corporation Bank and Oriental Bank of Commerce increased it by 50 basis points each to 12.50 per cent. Union Bank and IDBI raised their BPLR by 50 basis points each to 12.25 per cent and 13.25 per cent,respectively. But,SBI is yet to raise its BPLR. Bank of Maharashtra CMD Allen C A Pereira said further hike in interest will depend upon liquidity condition and credit offtake in the months to come. Further increase in rates will depend on the liquidity position in the system and how advances pick up after September, he said. In its monetary review on July 27,the central bank had raised the short-term borrowing rate (reverse repo) by 50 basis points and lending rate (repo) by 25 basis points. It had retained the cash reserve ratio. Meanwhile,as to the agricultural lending target for the current year,Mukherjee said the target fixed for 2010-11 is Rs 3.75 lakh crore but I am confident that it will cross Rs four lakh crore. He said he has asked the banks to increase the number of kisan credit cards and amount of advance by 20 per cent each. Stressing on financial inclusion,the finance minister said that RBI has asked banks to work out a plan for expansion in rural areas and areas where majority of the population is inhabited by minority communities. He also acknowledged that banks would have to constantly augment their capital base in order to meet the credit needs of the economy. Only 37 per cent of the total 88,000 bank branches are in rural areas,with just 40 per cent of the population having bank accounts,he said. Mukherjee further said challenges such as low bank penetration and high intermediation costs can constrain the countrys growth,while expressing satisfaction about the overall performance of the state-owned banks.
