FM, bankers expect stable interest rates in near future

Thu, May 1 05:51 PM

New Delhi, May 1 (PTI) Easing concerns of banks raising interest rates, Finance Minister P Chidambaram today said he does not expect an increase in lending rates any time soon. Echoing Chidambram's comments, prominent bankers also said the rates are likely to be stable in near-term.

Briefing reporters after a meeting with PSU bank heads, Chidambaram said, "They (PSU bankers) are happy that only the Cash Reserve Ratio has been hiked and policy rates have been untouched. They do not expect the CRR hike to impact interest rates.

So going forward, in the reasonable future, I do not expect an increase in interest rates by public sector banks." He said loan growth by banks is likely to be slightly higher than RBI's projection of 20 per cent this fiscal.

A change in policy on housing loans by RBI would lead to more loans to this sector without a hike in rates, he said. "Bankers were particularly happy that there has been some change in policy regarding housing loans.

So this means that the housing sector can expect higher credit flow without impacting the interest rates," Chidambaram said. In its annual policy, RBI has increased CRR --proportion of deposits of banks that is kept with the apex bank-- by 0.25 per cent, which is likely to drain liquidity system by Rs 9,000 crore.

Earlier in the month, the the apex in an unscheduled move raised CRR by 0.50 per cent in two tranches in view of high inflation. A 0.50 per cent hike is expected to suck out over Rs 18,000 crore from the system.

After a hike in CRR in three tranches, there has been concerns of banks raising interest rates. In its annual policy, RBI had also categorised housing loans up to Rs 30 lakh as lower risk weight against present Rs 20 lakh and allowed urban cooperative banks to lend up to Rs 50 lakh in tier II cities for housing.

PTI.

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