Interest rates to remain stable: FM

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New Delhi, May 1 (UNI) Interest rates are likely to remain stable despite the CRR hike, Finance Minister P Chidambaram today said after his meeting with bank chiefs.

''By and large banks have welcomed and appreciated the stance of the RBI. They were quite happy that only the CRR had been hiked and policy rates have been untouched,'' Mr Chidambaram told reporters here after the meeting.

''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 state-run banks,'' he added.

Talking about the loan waiver scheme, the Minister said the banks should take over money lenders' loan in the farm sector.

The Finance Minister had sought an impact assessment of the monetary policy changes from the 28 state-run bank chiefs. He had also asked for data on the credit flow to different sectors and an update on the liquidity situation, interest rates and growth in deposits and advances during 2007-08.

The Reserve Bank of India had announced 25 basis points hike in the cash reserve ratio on Tuesday as part of its inflation combating drive.

Earlier this month, the central bank had announced a 50 basis point rise in the CRR. By the time the hikes come into effect, on May 24, over Rs 26,000 crore would have been mopped up.

RBI has also made it clear that there is a need to moderate the credit and deposit growth rates.

Mr Chidambaram, who reviewed the performance of state-run banks, said they had reported loan growth of 24.5 per cent in the fiscal year ended March 2008.

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 by 23.01 per cent.

He added that the state run banks gross non-performing assets ratio had declined to 2.17 per cent in the last fiscal 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 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 shadow over a growing but still underdeveloped area of the market.

UNI SG SR BST2004

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