High interest rate regime over

CHENNAI: Good news for potential home and car buyers. Bankers said that lending rates have peaked and they may not go up further. That holds true for deposit rates too.
“I am not expecting either lending or deposit rates to move up from here. They are going to remain benign, depending on the situation of inflation,” Mohan Tanksale, executive director of Punjab National Bank, said.
M Narendra, chairman and managing director of Indian Overseas Bank, said that some small banks, who have not been able to fully pass on the increase in their cost of fund, may go for a further 0.25% increase in their lending rates. “However, interest rates in general are going to remain stable in the first quarter of 2011-12.” S C Sinha, executive director of Oriental Bank of Commerce, said deposit and lending rates are going to fall from here on.
The bankers’ opinion is based on the expectation that inflation rate will come down further. They are also expecting the liquidity situation to improve in the coming days. “We have seen that the inflation rate is coming down because of the combine effort of the RBI and the government. We are expecting inflation to come down further to 7%. The government also has started spending, which would ease the pressure on liquidity. Thus we may see only one or two small steps from the RBI,” said Narendra.
United Bank of India’s executive director S C Bansal said that the RBI may increase its policy rates by another 0.25%. He, however, said that the hike will not have any further impact on the interest rates.
“There are two reasons why interest rates may not go up further. Banks are comfortable with the liquidity, where it stands now. Second, the first quarter of a financial year is usually sluggish in terms of credit demand. Thus, there is no pressure on banks to raise lending and deposit rates,” Bansal said.
According to the Reserve Bank’s latest data, banks have seen a 23.3% growth in their credit in FY11, compare to a 16.2% in FY10. The demand for deposit grew only by 16.6% as against 18.8% the previous year.
Banks are expecting things to change. They are pegging deposit growth at 20%+ in the current financial year.