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Banks' margin under pressure

Special Correspondent

NEW DELHI: With the hike in the rate of interest on deposits, bankers fear that their profit margins would be affected as the lending rates remain unchanged.

Recently, some of the major scheduled commercial banks such as Bank of Baroda (BoB), Punjab National Bank (PNB) and Oriental Bank of Commerce (OBC) raised the interest rates on domestic deposits without any hike whatsoever in the lending rates.

Speaking on the pressure on margins in a highly competitive market, PNB Chairman S. C. Gupta said: "There will be pressure on profit as the interest rates in deposits have gone up... For example, the interest rate on deposits for one year is more than seven per cent." Mr. Gupta was inaugurating PNB's Delhi (North) Zone office here.

"[The] soft interest rate regime will continue, whether inflation is below five per cent or above,'' Mr. Gupta said, while noting that his bank would maintain stability in lending rates till the end of the current fiscal year. While OBC has raised the deposit rates without going in for an increase in the lending rates, BoB and IDBI have already ruled out any hike in their lending rates.

To tide over the situation in which profitability margins are getting squeezed, bankers realise that the answer lies in efficient asset-liability management, reduction in transaction costs and higher mobilisation of deposits. "With credit demand picking up, we need resources. Thanks to better recovery, we had better manoeuvrability,'' Mr. Gupta said, while pointing out that banks may have to face some liquidity pressure as the demand for liquidity would be high.

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