Banks may cut rates if funding costs fall: IBA

India's lenders may lower interest rates if their funding costs come down, but banks have not suggested any specific steps at a meeting with Reserve Bank of India officials, Bank of Baroda Chairman and Managing Director M.D. Mallya said on Tuesday.

"One has to see the funding cost coming down before any change in interest rates happen. We have not seen a change in funding cost in recent past," Mallya, who is also the chairman of Indian Banks' Association (IBA), told reporters.

He was speaking after the customary meeting of bankers with the central bank ahead of the monetary policy review on January 24.

The RBI is widely expected to begin easing monetary policy after 13 rate increases affected since March 2010 to rein in a stubbornly high inflation.

"We haven't suggested anything specific to the RBI, but nevertheless we have discussed about the present situation," Mallya said.

He did not comment on whether banks have specifically asked for a cut in cash reserve ratio -- the proportion of deposits banks keep in cash with RBI -- to boost liquidity. At present, banks' CRR is 6%.

The stress in asset quality is a major concern for banks, Mallya said.

Banks' non-performing assets, or bad loans, are expected to rise to about 2.6% of their total assets in the fiscal year ending March, from 2.3% a year ago, ratings agency Crisil said earlier this year.