'Banks in a fix on lending rates cut'

The prime minister's economic panel on Friday said banks are currently not cutting lending rates much as their deposits rates are high, but hoped that they would slash rates gradually.

The Prime Minister's economic panel today said banks are currently not cutting lending rates much as their deposits rates are high, but hoped that they would slash rates gradually.

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"They (banks) find themselves in a fix. Deposit rates have been raised and the lending rates cannot be reduced significantly immediately. So, I think that is the bind in which they are," Prime Minister's Economic Advisory Council Chairman Suresh Tendulkar told reporters in New Delhi.

He, however, said banks would gradually cut down interest rates.

Tendulkar, however, refused to hazard any guess or make any prescription for RBI on interest rates in its forthcoming quarterly review of monetary policy slated for January 27.

"It is for RBI to take a call. I will not make any suggestion on that part," he said.

Ever since the Lehman Brothers went bankrupt in September 2008, the Reserve Bank has been signalling cuts in interest rates by reducing policy rates like Repo and Reverse Repo and resorting to other measures.

It has injected more than Rs 3,00,000 crore into the system to spur economic growth.

Banks have responded to RBI's decision by cutting interest rates, but the industry is asking for further rate cuts to spur slowing down growth.

Many economists predicted that RBI would further cut interest rates in the January 27 policy review, with inflation down to sub-six per cent. Even after a rise due to truckers and oil sector strikes, inflation reached 5.60 per cent for the week ended January 10.