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Banks forsee no major change in monetary policy

Leading public sector banks unanimously expected the policy to address the tightening liquidity in the system.

india Updated: Jan 23, 2006 19:00 IST

On the eve of third quarter review of monetary policy by the Reserve Bank of India (RBI), leading public sector banks on Monday unanimously expected the policy to address the tightening liquidity in the system as they foresaw no major change from the central bank's mid-term stance.

"As a banker, I feel there is certainly an upward pressure on the interest rates," State Bank of India Chairman AK Purwar said, adding it was difficult to say anything on the policy.

Asked whether the SBI group was planning to hike interest rates, he said the group was constantly reviewing its position.

"There is certainly an upward pressure but let us wait for the policy and see the signals from the market," he said, adding the policy would definitely give a direction.

Union Bank of India Chairman Cherian Varghese did not forsee major changes in the forthcoming policy of the RBI, since the mid-term policy was working well.

"Inflation is well under control. It was, as on January 7, inflation was 4.24 per cent. This is well below the RBI-projected 5.5 to 6 per cent," he said.

Stating that the only concern was to manage liquidity in the system, he said, he would expect the central bank to release a part of cash reserve ratio (CRR).

"Credit offtake growth on year-on-year basis has grown by Rs 3,15,161 crore as on January 20, 2006 vis-a-vis deposit mobilisation of Rs 2,81,617 crore," Varghese said, adding the release of the CRR would definitely help the system.

"Since almost all the public sector banks are hovering around the threshold limit of 51 per cent mandatory government holding, the central bank is expected to announce instruments for raising capital for the banks," Varghese said.

"An announcement on the instruments that qualify tier-I capital other than equity would work well for the banks for raising capital," he said.

Dena Bank Chairman and Managing Director MV Nair also said the liquidity in the system was under pressure. However, he denied to comment further on the third-quarter review of the policy.

A PSU banker said the central bank would not likely to go for hiking repo, reverse repo and bank rates since that would mount further pressure on liquidity in the system.

In its mid-term review of the monetary policy in October, RBI kept the bank rate unchanged at six per cent but increased the repo and the reverse repo rates by 25 basis points to 5.25 per cent.

First Published: Jan 23, 2006 19:00 IST