Spare banks of further rate hikes: IBA tells RBI

Mumbai: The Indian Banks Association has made a strong case against another round of rate hike by the Reserve Bank even as the central bank looks for ways to squeeze liquidity and check runaway inflation. The RBI will hold its next monetary policy review on 29 July.

An IBA delegation led by IBA chairman T S Narayanasami met RBI deputy governors early this week to impress upon them on the severe margin pressure and the loan-deposit mismatch that have already hit banks hard.

RBI Deputy Governors, Rakesh Mohan, P Leeladhar and Shyamala Gopinath met  the IBA delegation in a pre-monetary policy consultation.

All leading banks have jacked up their rates in both the asset and liability sides following successive hikes in CRR and repo rates and the consequential rise in cost of funds.

A further tightening of monetary policy to contain inflation would further aggravate the situation, they pointed out.

Both the government and the RBI are under severe pressure to contain inflation by slowing demand, which calls for strong monetary measures.

''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," IBA sources said.

The IBA delegation included State Bank of India chairman O P Bhatt, Punjab National Bank chairman and managing director K C Chakrabarty, Bank of Baroda CMD M D Mallya, Bank of India CMD T S Narayanasami, HDFC Bank managing director Aditya Puri and Bank of America's India-head Vishwavir Ahuja.

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.

Analysts expect the RBI to continue its monetary tightening measures amidst high crude prices and a double-digit inflation.