Banks Reluctant To Lower Rates

Despite indications of a slowdown in economic growth, most banks feel there will be a sharp rise in the demand for credit once the busy season sets in. They also expect the government to exceed its borrowing target and a resultant squeeze on money supply.

Even State Bank of India, which had complained of low credit offtake while bringing down its prime lending rate from 16 to 15.5 per cent, seems to be reviewing its position. The demand for credit has again started picking up from the middle of August after a slowdown in June/July, SBI chairman P G Kakodkar said. RBI governor C Rangarajan's advice to banks to pass on the gains of better efficiency in terms of operations and CRR cuts have not heeded by the banking sector. The chairmen of two nationalised banks said they were waiting for the RBI to cut CRR before revising interest rates.

 

Banks have not passed on to their customers the cost-saving through recent cuts in CRR and the drop in rates of the high-cost certificates of deposit. Most banks have cut CD collection and lowered rates to 10-11 per cent.

We are reaching a point where interest rates will be guided by demand-supply situations,, said Rashid Jilani, chairman of Indian Banks Association.