Mumbai: India’s top bankers expect lending rates to remain unchanged in near term despite upward pressure, after the central bank on Tuesday tightened policy for the second month in a row to battle near double-digit inflation.
The Reserve Bank of India raised key interest rates as well as its cash reserve ratio (CRR) requirement for banks by 25 basis points each, as expected, in a move to drain further liquidity from the financial system.
“There has been a build up of upward bias (on rates). I do not see any immediate rise (in rates). There can be change in rates only if (credit) demand rises,” O.P. Bhatt, chairman of State Bank of India (SBI), the country’s top lender, told a news conference after the central bank’s policy announcement.
SBI, which along with its associates control almost a quarter of Indian bank loans and deposits, expects the economic growth to be “fairly robust” and the policy tightening to be “very mild”.
“The policy is a signal that the central bank is concerned about both growth and inflation,” Bhatt said.
Second-ranked private sector lender HDFC Bank also said it does not see any significant rise in interest rates after the central bank’s latest move.
“Our (lending) rates depend on demand. We do not see any significant change in rates in the near term,” Aditya Puri, managing director at HDFC Bank said.
The central bank said it expects non-food credit growth of commercial banks at 20% in 2010-11 as the Asia’s third largest economy is set to grow at 8.5%.
“We will be able to maintain credit growth target set by the RBI in the current year as there is enough liquidity,” M.V. Nair, chairman of Indian Banks’ Association, the bankers’ apex body, said.
“Policy action is in the right direction,” said Nair, also chairman and managing director at Union Bank of India.
Indian bank credit grew an annual 16.7% in March-end, in tune with a rise in business confidence, from a low of 9.7% in October.
Analysts expect credit demand to pick up further in the first half of the 2010-11 as industries would need more funds to expand operations in a growing economy.