Fearing a deterioration in asset quality and to fire up credit demand, top bankers today appealed to the Reserve Bank of India (RBI) to pause its interest rate hike cycle that has already seen 12 hikes in the past 19 months.
"Bankers want a pause [to rate hikes]. It goes without saying... [and] for a longer period of time," chief executive of Indian Banks Association, the umbrella body of banks, K Ramakrishnan, said.
The RBI is scheduled to unveil the second quarter monetary policy on October 25.
Bankers are concerned because there is no pick up in credit and the actual disbursements happening at present are the proposals sanctioned earlier, he said after the customary bankers' pre-policy meeting with the RBI Governor Duvvuri Subbarao and the deputy governors.
"Frankly speaking, credit growth is muted. The credit growth has not been to the expectations, capex [by companies] is virtually at a standstill, investment is not really happening," Ramakrishnan said.
However, as of September 9, non-food credit growth logged in 20.1% or by Rs 31,490 crore, according to the RBI data. But this was mostly due to the disbursals of outstanding credit orders by the petroleum, coal and nuclear sectors.
Bank of Baroda Chairman and Managing Director MD Mallya, who also chairs the IBA, said demand for credit has been "muted" and is likely to stay so for "some more time".
After lowering its key rates during the slowdown period, the RBI switched over to tightening in March 2010 and has raised short term rates a record 12 times since then in its bid to cool down an uncomfortably high inflation.
At present, the repo rate that is the short-term lending rate, stands at 8.25%.
Headline inflation -- which stood at 9.78% in August -- continues to remain high despite a good Monsoon and fall in global commodity prices, while the repeated hikes have led to fears of a slow down in economic growth as investment is slowing down.
The industry is demanding a pause and all eyes are set on what action the central bank takes on October 25.
"There is a feeling that because of the pressure happening in the credit portfolio there is a possibility that non-performing assets can go up," Ramakrishnan said.
This will entail an increase in provisioning against doubtful assets which will eat into banks' bottomlines over the next quarter and also affect the net interest margins (NIMs), he said.
Mallya also admitted there is a pressure on asset quality, especially from the steel and textile sectors, but refrained from giving an estimate on the number.
Bankers who met the RBI top echelons also included State Bank Chairman Pratip Chaudhuri, ICICI Bank Managing Director and Chief Executive Chanda Kochhar, HDFC Bank Managing Director and Chief Executive Aditya Puri and Standard Chartered's Neeraj Swaroop among others.
