New Delhi: Finance Minister P Chidambaram expects the interest rates on one-year bank deposits, which have risen to nearly 10%, to come down by about 0.5%.
“Banks may lower deposit rates of one year maturity by 0.5%... Some banks have already done that and interest rate have come down to 8.5%. My impression is that it will stabilise at that level,” Finance Minister P Chidambaram said today.
State-run Bank of India had on 31 July reduced interest rate on one year deposits to 9% from 9.5%.
Such a reduction has been warranted by the Reserve Bank’s move to tighten money supply by increasing Cash Reserve Ratio by half a percentage point to seven per cent.
“RBI is concerned with liquidity. That is a legitimate concern. That’s why it raised CRR by 50 basis points. That will suck out about Rs 16,000 crore of excess liquidity,” he said after an interaction with CEOs of public sector banks.
On the removal of Rs 3,000 crore cap on reverse repo transactions by banks, he said that will also suck out liquidity. “These two measures will have marginal impact on net interest margins of banks.”
Chidambaram said in his view public sector banks have a healthy balance-sheet and they can bear the stress. “Banking sector has to bear (the CRR hike) and help fight inflation.”
He said by and large the monetary policy would not have any serious impact on the banking system.
Planned credit growth of 24% this year will take care of credit requirement of all productive sectors, he said.
The Finance Minister also said that banks have agreed to increase lending to minorities to 15% from nine per cent of total priority sector credit over the next three years.