No lending rate cut till deposit costs fall: banks

Bankers today expressed fears that non-performing assets (NPA) are likely to go up and credit growth may moderate in 2009-10 in the face of the global financial meltdown.

"If there is a sharper downturn, it can further impact the asset quality... Banks are looking at a lower rate of loan growth this year," Indian Banks Association Chairman T S Narayanasami told reporters after a meeting of bankers with Reserve Bank of India (RBI) Governor D Subbarao ahead of annual monetary policy.

Bankers also informed the apex bank that it would be difficult to bring down lending rates unless the retail and bulk deposit rates decline.

"The cost of deposits is still high. This will have to come down first. Then only will the lending rates ease," said Narayanasami, who also heads Bank of India.

State-owned banks are likely to consider a 0.5-0.75 percentage point reduction in deposit rates in a period of 2-3 weeks, which is likely to be followed by a 0.5 per cent reduction in lending rates, he said.

"With the RBI slashing its key rates, banks have sufficient liquidity now," he said.

On government borrowing, Narayanasami said, "The RBI manages it (the government borrowing programme) in an extremely efficient way."

During the meeting, banks also expressed concern over the five per cent provisioning mandated by the apex bank on the restructured accounts, IBA Chief Executive K Ramakrishnan said.

"Banks felt that this additional provisioning will be a burden and will impact their profitability," Ramakrishnan said.

Banks also told RBI that they expect the credit growth to moderate to 18-20 per cent in the current fiscal, much below a 25-30 per cent growth recorded in last financial year.

"They expect the loan portfolio to grow at 18-20 per cent in 2009-10," Ramakrishnan said.

Among the bankers who attended the meeting, were Punjab National Bank CMD K C Chakrabarty, Canara Bank CMD A C Mahajan, Standard Chartered India Chief Neeraj Swaroop, Union Bank of India CMD M V Nair and IDBI Bank CMD Yogesh Aggarwal.