[sbinews] RAtes may fall further

  • From: sbistcbangalore@xxxxxxxx
  • To: sbinews@xxxxxxxxxxxxx
  • Date: Sat, 13 Dec 2003 07:22:52 +0500

Rates may fall further: Banking CEOs

MUMBAI: A cross-section of chief executives in the banking industry feel 
interest rates could dip further, despite rates hardening in certain economies. 
However, the bottom appears to be in sight as the decline is expected to be in 
basis points and not the percentage point drops that have been witnessed in the 
past few years. 

While most bankers feel rates are pretty close to the bottom, they do not see 
them rising until a substantial recovery in credit, which is seen happening 
only in the middle of the next fiscal. The good news for smaller businesses is 
that nearly all the bankers said introduction of a benchmark PLR would bring 
down costs by a significant 50-75 basis points. 

Around 15 CEOs were contacted by ET to obtain their interest rate view. The 
chief executives represented banks from all segments: public sector, foreign 
and private banks. 

According to most, the key factors to watch out for were the liquidity position 
in the banking system, which is being driven by foreign exchange inflows and on 
the demand side, a pick-up in bank credit. Inflation and government borrowings 
— the two main issues that determine interest rates in the early 90s — seem to 
be of lesser concern. 

The chief executives of State Bank of India and ICICI Bank, which together 
control nearly 30% of the banking business in the country, feel interest rates 
are close to the bottom. While SBI chief AK Purwar says the outlook for 
interest rates is soft to stable, ICICI’s CEO KV Kamath feels rates have 
bottomed out. 

“Our view is that there is a near-term opportunity for a downward movement in 
interest rates given the high level of liquidity still in the system. But in 
6-9 months’ time, we expect an increase in business activity which could push 
up interest rates a little. Inflation is not a worry at the moment,” said 
Christopher Lowe, country head, Standard Chartered Bank. 

Romesh Sobti, country head, ABN Amro Bank, however, feels rates have bottomed 
out. “We do not expect interest rates to fall any further for the next six 
months at least. In fact, given the real rise in non-food credit, we may even 
see interest rates rise marginally by the third quarter of next year. Inflation 
is going to be one of the key factors to watch out for. If they continue to 
rule at current levels, it would add to the upward pressure on interest rates”. 

None of the bankers contacted by ET felt interest rates would rise during the 
current financial year. Corporation Bank chairman, K Cherian Varghese said the 
beneficiaries of further rate cuts would be small businesses and not seekers of 
home loans, where competition has already pushed rates to the bottom. 
“Liquidity continues to remain easy and credit pick up is not very high. I do 
not expect interest rates to go up until the middle of next year,” said Mr 

The question uppermost in the mind of a majority of home loan seekers is 
answered by LIC Housing Finance chief executive SC Jain. “I expect rates to 
remain at the current level and not fall any further. I would advise a new 
borrower to go in for a fixed rate loan,” he said. 

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