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Home / Business News / 'Further rate hikes may cause loan delinquencies'

'Further rate hikes may cause loan delinquencies'

Interest rates have peaked, and raising them further may lead to problem of loan delinquencies, said VP Shetty, Chairman and Managing Director of IDBI Bank, reports BS Srinivasalu Reddy.

business Updated: Apr 20, 2007, 22:32 IST
BS Srinivasalu Reddy
BS Srinivasalu Reddy
None

Interest rates have peaked, and raising them further may lead to problem of loan delinquencies, said VP Shetty, Chairman and Managing Director of IDBI Bank.



Responding to a query after announcing the annual results of the bank, Shetty said, "Interest rates have peaked. Inflation is expected to come down in the next few weeks." The statement gains significance as it comes a few days ahead of the Reserve Bank of India's scheduled Annual Credit Policy announcement on Tuesday.



"Loan delinquencies will be visible only if rates climb further by a certain level," Shetty, who is also the chairman of Indian Banks Associaiton (IBA), said on the present status of rise on the otherwise non-performing assets.



To another query, he said that the bank, which holds over 5 per cent of IFCI Ltd (erstwhile Industrial Finance Corporation of India) stake, has not taken any decision to sell it.



The bank posted a 12.3 per cent rise in its net profit at Rs 630 crore for the year ended March 2007 and declared a dividend of 15 per cent. The bank's deposits rose by 67 per cent to Rs 43,354 crore, while advances grew by 18.4 per cent to Rs 62,471 crore.



Responding to a query on possible reduction of sanctions to home loan borrowers during the current fiscal (2007-08) based on the Finance Minister's suggestion to bring down personal loan sanctions, the IDBI chairman said that the bank may grow its home loan portfolio further, given its low share in the total credit. "This year also our home loan portfolio is likely to go up substantially. We are likely to disburse loans of over Rs 5,000 crore during the year against over Rs 4,200 crore in 2006-07. Home loan portfolio constitutes only 16 per cent of our portfolio," Shetty said.



"We have built infrastructure that can help disburse Rs 8,000-10,000 crore home loans a year," he added.



Meanwhile, the bank, which has got the RBI approval for setting up branches in Singapore and Bahrain, would set up a branch in Singapore within a month. Besides business, this will also lower the cost of foreign currency funds raised in that country by making the bank eligible for withdrawal tax waiver of about 20 per cent.



The bank is planning to raise $1.5 billion (over Rs 6,200 crore) of dollar-denominated loan in the Singapore market after setting up the branch. Plans are also afoot to set up a private equity funds in joint venture with its subsidiary, IDBI Capital Market Services (ICMS). "We have already applied for RBI approval," a bank official said on condition of anonymity.

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