Mumbai : Indian banks on Thursday urged the central bank to keep interest rates stable at its policy review later this month, saying any increase could further dent sluggish demand for loans.
The Reserve Bank of India (RBI) is widely expected to raise the cash reserve ratio (CRR), the level of cash banks must keep with the central bank, when it finalises policy on January 29.
Recent strong data has raised expectations that policy rates might also be raised, with December inflation at a one-year high of 7.31 per cent.
"We told the RBI that this is not the right time to hike rates and indicate increase in lending rates," the chairman of a state-run bank said, after a meeting with central bank officials ahead of the policy review.
Loan growth in India fell below 10 per cent in November despite a reduction of 300-350 basis points in lending rates since the start of 2009. Companies have been raising funds at cheaper rates from overseas.
Bankers said a pick-up in annual loan growth to 13.7 per cent on January 1 was unlikely to be sustained as the rise was caused by bunching of disbursements ahead of the December quarter end.
"Liquidity will be in abundance up to March as credit pick up is not happening," said M.V. Nair, head of the Indian Banks Association that represents all commercial banks in the country. Banks have been parking excess funds of around Rs800 billion (Dh64 billion) in the central bank's daily reverse repo auctions.
