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Pause rate hikes,let us stabilise growth pace: Bankers to RBI

Bankers urged the Reserve Bank of India to pause rate hikes.

Written by ENS Economic Bureau | Mumbai |
July 19, 2011 1:46:23 am

Sensing a slowdown in credit offtake as well as deposit growth in the banking industry,bankers on Monday urged the Reserve Bank of India (RBI) to pause rate hikes and sought more clarity on interest rates and inflation in the monetary policy review on July 26. The bankers want the rates to be retained at the current levels for some time till banks stabilise their growth pace.

“We have suggested the RBI to pause its rate hike cycle and also urged for a forward-looking statement on interest rates at the policy review next week,” Indian Banks’ Association (IBA) chief executive K Ramakrishnan said after a meeting of the bankers and the RBI on Monday.

“Credit growth has been too lax for some time now. 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.”

Bank of Baroda chairman and managing director MD Mallya,who is also the chairman of IBA,warned of a slowdown in credit growth and said as no new projects are being planned by the industry,it is unlikely that banks will see an uptick in advances in the current quarter as well. “We have already submitted our feedback to the RBI on the overall assessment of the banking sector before the policy review and we have seen that overall credit growth during the current fiscal is very slow,” Mallya said.

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“As new projects are not coming up to our expectations,I think it may result in slowdown in credit demand. So,we will have to wait and watch before we scale down our credit growth target for the year,” Mallya said. Select bankers,led by the bankers’ body IBA,met RBI deputy governor Subir Gokarn on Monday to give their views on interest rates,credit and deposit growth,economic growth,bad loans and other macro-economic parameters ahead of the first-quarter policy review due on July 26.

The RBI has raised rates 10 times so far since March 2010 to tame surging inflation. In May,it surprised the market with a 50 basis points increase and is widely expected to raise rates by 25 basis points again on July 26. The central bank is trying to maintain a tough balancing act as it tries to keep the growth going and at the same time curb near double-digit inflation. On the other hand,banks have also raised lending rates 100-175 basis points in response to the RBI’s previous rate hikes and are worried that further rate hikes could hurt credit pick-up in some way or the other.

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