Another hike in rates may hit banks: IBA

Mumbai, July 9 : Indian Banks Association has made a strong case to the Reserve Bank of India to not to go for yet another round of measures like hike in rates to check the runaway inflation.

Bankers led by IBA Chairman T S Narayanasami met RBI Deputy Governors to impress upon the apex bank that they are facing severe margin pressure coupled with asset- growth slowdown, which have hit them hard.

In such a scenario any harsh monetary measures to contain inflation would further aggravate the situation. But both the government and the RBI are under severe pressure to contain inflation that calls for strong monetary measures thus slowing down demand.

"We did express our concerns about a visible pressure on the banks' margins. Another round of hike in cash reserve ratio (CRR) and repo rates would exert pressure on the profitability of banks, which are already feeling the pinch after successive rate hikes," an IBA spokesperson said here.

In a bid to arrest the ballooning inflation, which stood at 11.63 per cent for the week-ended June 21, the RBI effected a series of hikes in its key-short term rates and cash reserve ratio in the previous weeks prompting the banks pass on the burden to their customers.

Following this, many banks announced a balanced hike in their lending and deposit rates to avert a sharp-decline in the margins but are understood to have seen a clear impact on their Q1, FY 09 margins on account of lesser-credit demand.

ANI