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Interest rates may go up with pick up in bank credit: ICICI

Interest rates may go up with pick up in bank credit: ICICI
PTI
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First Published: Tue, Nov 16 2010. 05 47 PM IST
Updated: Tue, Nov 16 2010. 05 47 PM IST
New Delhi: ICICI Bank, the country’s largest private sector bank,on Tuesday said there was pressure on interest rates following RBI intervention to check inflation, and that loans may cost more with pick up in credit.
“There is an upward bias on interest rate. How they move up... to what extent they move up and at what rate they move up... will partly depend on how credit growth rate in the system picks up,” ICICI Bank CEO and managing director Chanda Kochhar told PTI in an interview in New Delhi.
RBI had earlier this month raised key rates at which it lends (repo) and borrows (reverse repo) short-term capital from commercial banks by 25 basis points in its bid to tame inflation.
“Clearly, the fact is that the liquidity is being managed tightly. The fact is that deposit cost have gone up and therefore as credit demand picks up there would be upward bias on interest rate,” she said.
Asked if there is pressure on liquidity, she said, “there were some periods last year where we had excess liquidity. All that has gone. We are tightly managing liquidity.”
Liquidity had also come under pressure owing to the huge public issue of Coal India Ltd a few weeks ago. Besides, a surge in spending during the festival season also put pressure on liquidity.
SBI chairman O P Bhatt too had said that interest rates were under pressure and might push up the rates.
“Interest rates have a slightly upward bias... (due to) liquidity combined with some more credit offtake, which is going to take place. So these two together may push up interest rates,” Bhatt had said.
Punjab National Bank (PNB) chairman and managing director K R Kamath too had said recently that banks might have to raise deposit rates to garner savings to meet the credit growth.
Increase in deposit rate raises cost of funds, eventually translating into higher lending rates.
Reserve Bank in its mid-year credit policy review earlier in the month raised the key short-term lending (repo) and borrowing (reverse-repo) rates by 25 basis points to 6.25% and 5.25% respectively to contain inflationary expectations. The central bank injects liquidity through repo operations and absorbs it through reverse repo.
To ease pressure on the banking system, RBI recently announced special liquidity easing measures, allowing banks to dip into their SLR (statutory liquidity reserve) portfolio by 1%.
According to the RBI’s special measures, banks would be able to avail of more funds under the liquidity adjustment facility (LAF) for up to one per cent more on their deposits.
“For any shortfall in maintenance of statutory liquidity ratio (SLR) during 9 November - 16 December , 2010, arising out of availment of this facility, banks may seek waiver of penal interest purely as an ad hoc, temporary measure,” RBI had said in a statement.
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First Published: Tue, Nov 16 2010. 05 47 PM IST