Bankers have submitted to the Reserve Bank of India that they expect interest rates to remain stable as there was no pressure to raise rates further with liquidity at comfortable levels.
In a pre-monetary policy meeting with RBI Deputy Governor Rakesh Mohan, bankers, under the aegis of Indian Banks' Association, conveyed that there were sufficient funds in the system.
The bankers who met Mohan included M.B.N. Rao, Chairman and Managing Director, Canara Bank (also Chairman of the IBA), O.P. Bhatt, Chairman, State Bank of India and Vishwavir Ahuja, Managing Director and Country Executive, India, Bank of America. H.N. Sinor, Chief Executive of the IBA, was also present at the meeting.
"There is sufficient liquidity in the system. Interest rates should remain stable. The environment is good, there is no upward pressure on interest rates," said a banker on condition of anonymity.
Since January 1, banks have only on two occasions availed themselves of RBI funds against government securities under the repo window.
The bankers also submitted that there would be a moderation in credit growth for 2007-08 as warranted by the RBI policy. Banks would be able to achieve a credit growth of 20-22 per cent during the year as against close to 30 per cent in the preceding three years.
The central bank had placed the credit growth, excluding food credit, at 24-25 per cent during 2007-08, a deceleration from a compounded 29.8 per cent growth over the preceding three years.
At the end of December 2007, credit growth stood at 21.4 per cent over a year earlier. Banks had added Rs 2, 19,180 crore of advances to their loan book during April-December 2007 as against Rs 2, 62,938 crore a year earlier.
The bankers felt the economy was on course to achieve a gross domestic growth of 8.5-9 per cent, despite the slackening of growth in some sectors like consumer durables and textiles.
"The growth in consumer durables and textile sector is slackening due to rupee appreciation. However, capital goods sector continues to grow," said the official.
Finance Minister P. Chidambaram had earlier this month advised public sector bank chairmen to lower both deposit and lending rates by 50 basis points and step up consumer lending to ensure the economy stays on track to grow at 9 per cent.
Chidambaram had said, "I would like both deposit and lending rates to move down 50 basis points, so that it stimulates both investment and consumption. If monetary policy is also supportive, I think it is possible to look forward to a period of stable and perhaps some moderation in interest rates. But at least, we should aim for stable interest rates and hope to moderate them in the medium term."
