BANKING
| Hike deposit rates, slash interest on loans to spur growth:RBI Fri, 03 Dec 2010 16:31:33 GMT |
| The Economic Times MUMBAI: The RBI today asked banks to hike deposit rates and lower the interest charged on loans with a view to raise the level of national savings, as well as encourage the investment required for double-digit growth. "To achieve our collective aspiration of double-digit and inclusive growth, we need to raise the level of national savings and channel those savings into investment... This means banks need to raise the interest rates offered to depositors and reduce the lending rates charged on borrowers," RBI Governor D Subbarao said. In his address at the annual Bancon 2010 banking conference here, he said that while the net interest margins of banks have fallen by 0.5 per cent over the last decade to 2.5 per cent now, they are still higher than those enjoyed by their peers in other emerging markets, even after accounting for expenditure on mandatory corporate social responsibility activities. The RBI has been pressing the banks to raise deposit rates, since they are fetching negative returns for depositors if adjusted on the basis of prevailing high inflation levels. "If bank credit is not to become a constraint to growth, the real rates need to move in the direction of encouraging bank deposits," the RBI had said in its September quarterly review. The RBI Governor's call comes at a time when the Indian economy is on an upswing after clocking 8.9 per cent growth in Quarter 1 and 2 of the 2010-11 financial year. The robust expansion has led many analysts to predict that the economy will grow at a faster pace for the entire fiscal than the Finance Ministry's conservative projection of 8.5 per cent growth. Earlier, Finance Minister Pranab Mukherjee had said the Indian economy will soon grow at a rate of 9 per cent annually and could even experience double-digit expansion in the next two years if the government is able to implement suitable reform measures. While the deposit rate on savings accounts in India is 3.5 per cent, fixed deposit rates range between 6 per cent and 7.5 per cent. The base rate, which is the minimum rate for lending, ranges from 7.5 per cent to 8 per cent. |
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