Interest rates will not rise, says Chidambaram
To tame inflation, the RBI raised the CRR), the money banks have to keep as deposit with the central bank, by 0.25 percentage points to 8.25 per cent, HT reports.Updated: May 01, 2008, 23:37 IST
Finance Minister P Chidambaram on Thursday said he did not expect interest rates to rise following the Reserve Bank of India’s (RBI’s) decision to hike banks’ mandatory reserve requirements.
To tame inflation, the RBI on Tuesday raised the cash reserve ratio (CRR), the money banks have to keep as deposit with the central bank, by 0.25 percentage points to 8.25 per cent. India’s wholesale prices-based inflation rate has been hovering over 7 per cent for the last few weeks.
“By and large, banks have welcomed and appreciated the stance of the RBI. They (banks) were quite happy that only the CRR had been hiked and policy rates had been left untouched,” Chidambaram said after a meeting with state-owned bank chiefs.
“They (banks) do not expect the CRR hike to impact interest rates. So, going forward in the reasonable future I do not expect any increase in interest rates by state-run banks,” he said.
Chidambaram, who reviewed the performance of the public sector banks, said agricultural loans grew by 23.33 per cent, while loans to small and medium enterprises grew by over 36 per cent during 2007-08.
Personal loans increased by 16.3 per cent, of which, housing loans grew by 16.44 per cent and automobile loans by 23.01 per cent.
Chidambaram also expected banks to return a better performance in 2008-09. The RBI has projected 20 per cent growth in advances and 17 per cent growth in deposits for 2008-09.
Gross bad debt of the public sector banks declined to 2.17 per cent in 2007-08 from the previous year’s 2.7 per cent.
Chidambaram also urged banks to focus on debt-swap schemes, where they offer loans to farmers to pay off local money lenders.
The finance minister also underlined the need for banks to lend more to persons of non-farming professions such as artisans, barbers and cobblers in rural areas.
He urged them to review their derivative portfolios and make sure customers understand them fully. Chidambaram expected loans to the housing sector to increase without impacting interest rates as the RBI had changed housing loan portfolio norms.