The Reserve Bank of India in a closed-door meeting on Friday nudged the banks to see the possible scope to cut interest rate as despite several round of cuts made by the Central Bank, the private sector banks have so far not reduced the interest rate on loans.
The public sector banks, on the other hand, had cut the loan interest rate up to 200 basis points in parity with RBI’s declaration.
The sources informed that the private sector banks in the meeting had assured the master bank to consider the possible scope of rate cut very soon, however, also urged the apex bank not to announce another round of cut in loan and deposit rates before this month or before the fourth quarterly review of the credit policy scheduled on last week of March, this year.
The third quarterly result of India indicated that India’s economy growth rate has begun to moderate and it needs a booster to recapture the growth rate. The Central Statistical Organisation (CSO) Wednesday reported that India’s growth rate has slumped to 5.3% within October to December 2008 as against the government’s expectation of over 7%.
Now, to boost demand in the market and in the industry, it is extremely mandatory to cut the interest rate. That’s why RBI has indicated that it can announce another round of cut in loan rates on or even before credit policy review.
Since last September, RBI has reduced the Cash Reserve Ratio (CRR) – the slice of cash banks have to park with the master bank – by 4% from 9% to 5%; the repo rate – the rate at which the apex bank lends short term loans to banks – by 3.5% from 8% to 5.5%; and reverse repo rate – the rate of interest, the master bank own the money from the banks in the exchange of government securities – by 2% from 6% to 4%. These moves of the master bank has collectively injected Rs.1,60,000-crore in the system.
The private banks that were facing tough competition from the public sector banks in the global turmoil period have urged RBI to stay the move of rate deduction for at least one month more as if they slash the deposit charges, their clients can move to the public sector banks viewing the higher rate of interest on deposits and better security.
But, now the scenario has been changing, as the sources from meeting informed. The private banks are preparing themselves to face this stiff condition to raise the demands.
However, C V Kamath, the managing director and chief executive officer of ICICI bank, denied that the topic pertaining to rate cut was discussed in the meeting. “It was a general discussion with exchange of views regarding the performance of economy. RBI wanted to assess how banks were coping with falling interest rates,” Kamath said after the meeting.
Besides Kamath, other top executives of eight banks, including public sector banks, were also presented in the meeting.
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