FM may take up rate hike issue with PSBs

APRIL 6, 2007: Finance minister P Chidambaram has called for a meeting with chiefs of public sector banks (PSBs) on April 19 to review the action taken by them on rebalacing the credit portfolio. Bankers are worried that the finance minister may raise issues regarding high interest rates to borrowers, particularly home loan borrowers. In the last meeting held by the finance minister immediately after the Reserve Bank of India (RBI) raised the key rates on January 31, bankers were asked to refrain from raising interest rates for home loan borrowers.

This time, post-CRR and the repo rate hike announced during the end of March, a number of private banks like HDFC Bank, UTI Bank and ICICI Bank have raised lending rates, but among state-owned banks only Bank of Baroda has announced an increase in lending rates. On Thursday, BoB said that it would charge 75 basis points more in its lending rates to 13.25% from 12.5% with immediate effect. For home loan borrowers and education loans above Rs 4 lakh, BoB has raised the rates by 50 bps, while rates for education loans below Rs 4 lakh remain unchanged. Among others, Punjab National Bank has said that it is considering to raise its lending rates.

According to agency reports, State Bank of India has hinted at a hike in its interest rates next week, following the RBI move to raise the cash reserve ratio (CRR) and a key rate last Friday. “We are examining its (the RBI move) impact on our balance-sheet. It is under examination. We will take a decision in a week or 10 days,” Yogesh Agarwal, MD, SBI, said on Thursday.

In the last meeting held during the early February, the FM had also asked banks to meet deposits targets. As a result, banks lure depositors by offering huge premium over the card rate. Some banks are of the view that under the political pressure, the finance ministry may urge banks to give loans to the minority community. Earlier, responding to a similar proposal from the government, Indian Banks Association (IBA) had informed the finance ministry that it would not be feasible for them to adhere to this.

Also, some banks are worried that the finance minister may raise issues regarding annual targets. The targets are linked to net profit, level of bad loans (gross and net), total business, total deposits and advances, growth in business, deposits and advances in percentage points, net interest margins, earnings per share, the priority sector growth, loans to agriculture and SMEs, return on assets and average return on advances. Bankers said that despite massive effort made by banks to mop up deposits at higher rates, most banks may miss this target.

Source: The Economic Times