Bankers say lending rates to remain high in near term

Bankers say lending rates to remain high in near term Mumbai: Borrowers troubled by elevated interest rates will have to wait for a bit longer for relief as bankers have virtually ruled out any immediate cut in the lending rates, citing high cost of funds.

The stance comes even after the Reserve Bank delivered two successive rate cuts of a cumulative 0.50 percent this year.

"The basic thing that is required -- the cost of deposits -- is still in the higher side," state-run Union Bank of India Chairman and Managing Director D Sarkar said, explaining his bank's inability to cut rates now.
Pratip Choudhary, the chairman of the nation's largest bank SBI, also said it is impossible for his bank to cut rates in the near term.

Many state-run banks, which generally rely on the costly bulk deposits to shore up their deposit bases unlike their private sector counterpart, which mop up the low-cost savings and current account deposits, have been ratcheting up their term deposit rates for the past few months.

The poor deposit collection problems for the state-run banks were compounded with finance ministry's directive last year asking them to bring down their bulk deposit ratio to 15 percent of their total deposits by March 31.

In a move that some experts saw as a sign of a weakness in deposit mobilisation, SBI upped its deposit rate offering by 0.25 percent last month.

Deposits have grown only about 13 percent during the fiscal, while credit has grown more faster at close to 17 percent. In the absence of sufficient deposits, the credit deposit ratios for the banks go up, according to the latest RBI data.

The interest rate scenario has been at an elevated level for over two years now, after the RBI went on a 13 consecutive rate hikes between March 2010 and October 2011 with a view to fight double-digit inflation.

PTI