The Hindu : Business : Bankers fear upward pressure on lending rates

Online edition of India's National Newspaper
Tuesday, Nov 23, 2004

Business

Business

Bankers fear upward pressure on lending rates

NEW DELHI, NOV. 22. In view of rising deposit rates after the Reserve Bank of India announced a hike in the Repo Rate, bankers fear a pressure on lending rates, including in farm sector, for which the government has mandated Rs. 1,04,500 crore lending this fiscal.

Already, many banks have upwardly revised their deposit and benchmark Prime Lending Rates and in such a scenario for how long can farm lending rates be `administered,' they said.

Though excess liquidity in the banking sector had been cited as "a cushioning factor for the banks not to react knee-jerk", they said the liquidity overhang could taper off sooner than later.

"The pressure has started building up (due to increase in deposit rates) and moreover, there is an expected excess credit demand not only from agriculture but also from industrial sector," a top official of a public sector bank told PTI. With the RBI `substantially' axing interest rate on the Repo balances held with it, though there are increased prospects for lending, bankers admit they would rather be `doubly' cautious due to the additional responsibilities that could be thrust on them due to the proposed Lenders' Liability Act.

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