Chidambaram expects state-run banks to hold interest rates

New Delhi, May 1 : Finance Minister P Chidambaram said on Thursday that state-run banks are unlikely to raise interest rates after the central bank tightened bank reserve requirements this week.

In its second move in just a few weeks to drain liquidity from the banking system, the Reserve Bank of India (RBI) on Tuesday raised the Cash Reserve Ratio (CRR) by 25 basis points to 8.25 per cent, its highest level in seven years, with effect from May 24.

The central bank signaled that it was ready to act again if price pressures continued to build. Wholesale inflation is running at more than 7 per cent, close to three-year highs.

"By and large banks have welcomed and appreciated the stance of the RBI in the latest monetary policy statement. They were quite happy that only the CRR had been hiked and policy rates have been untouched. They do not expect the CRR hike to impact the interest rates. So going forward in the reasonable future I don't expect any increase in interest rates by public sector banks," Chidambaram told reporters after meeting chiefs of state-run banks.

Chidambaram, who reviewed the performance of state-run banks, said they had reported a loan growth of 24.5 per cent in the fiscal year ended March.

Farm loan grew by 23.33 per cent and personal loans were up by 16.3 per cent. Among the personal loans segment, housing loan grew by 16.44 per cent and vehicle loans 23.01 per cent.

Chidambaram also said state run banks gross non-performing assets ratio declined to 2.17 per cent in the fiscal year ended March from 2.7 in 2006-07 and net bad loans dipped to 0.98 per cent from 1.1 per cent.

India had 82 commercial banks, including 29 foreign banks, and nearly 3,000 urban and rural cooperative banks as of March 2007. The sector is dominated by state-run banks.

The Finance Minister said he expects the state-run banks to perform strongly in 2008-09, the current fiscal year, and urged them to review their derivative portfolios and make sure customers understand them fully.

Several Indian firms are taking their banks to court over foreign exchange derivatives trades, which have gone sour, alarming policymakers and casting a pall over a growing but a still underdeveloped area of the market.

ANI