At RBI meet, they say deposit rates may be cut in next one month

Reserve Bank of India governor D Subbarao on Thursday got bankers to admit they had scope to lower their deposit and lending rates on the basis of the monetary policy measures already taken by the central bank. He gave each of the eight bankers he met 10 minutes to speak on their game plan thus far on deposit and lending rates.

The meeting assumed significance on a day when economic growth for October-December quarter came in at a disappointing 5.3%, the lowest quarterly rise since 2003.

Eight top bankers attended the meeting including ICICI Bank managing director and CEO KV Kamath, HSBC's India group general manager and CEO Naina Lal Kidwai, IDBI Bank chairman and managing director Yogesh Agarwal and State Bank of India MD R Sridharan.

Bank of Baroda chairman and managing director MD Mallya, Canara Bank CMD AC Mahajan, Punjab National Bank CMD KC Chakrabarty and Uco Bank head SK Goel were also present. ICICI's Kamath said the governor sought to know the bankers perspective on the steps taken so far. "They wanted to know how banks are coping with the dropping interest rates. It was only a exchange of views and nothing specific. It is a feedback mechanism on the bankers context in the economy," he said.

Bankers did not ask Subbarao about further action on policy interest rates. The governor did not broach the subject either, bankers who attended the meeting said. "We told RBI that we banks have already reduced lending rates on an average by 200 bps. There can be scope for another 100 bps reduction in April," a banker said.

On the growth front, economists predict that economic growth may not match government expectations of a 7.1% growth in 2008-09. After the latest disappointment, assuming that the December growth numbers don't change, the economy will have to expand by 7.5% in the March end quarter to clock a 7.1% growth in 2008-09.

ICICI's Kamath however said he is optimistic of an upward revision in the December numbers when the updated figures are announced in a couple of months.

"I have always been a bull, I think we will grow at 7%, we will wait for a correction (in the GDP numbers)," he said. Bankers are also watching the government bond market closely. "We are waiting to see what happens on the bond front. Let the bonds react and banks will take a view" Kamath said. Bond market yields are rising due to the excessive government borrowing as it spends extra to revive sagging economic demand. For banks, higher bond yields mean lesser prices and losses on account investments. Banks have to compulsorily invest 24% of their deposits into select government securities.

SK Goel, chairman and MD of Uco Bank, said private banks have promised the Reserve Bank of India that they will cut rates further. "The discussion was about giving relief to borrowers. To see that they are comfortable and not put to borrowers to any inconvenience. Whatever is possible will be done on rates," he said. Goel also said that bankers want to cut deposit rates, "but it is not possible immediately. We will have to wait for a month," he said.

Goel said banks are expecting a credit growth of 22 to 26% in 2008-09. "Liquidity is comfortable for now. It is the RBI's prerogative to cut rates," he said when asked about the possibility of a benchmark interest rate cut by the RBI.

Joel Rebello/ DNA-Daily News & Analysis Source: 3D Syndication