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Thursday, September 12, 2013

Central Bank not to raise lending rates now

State-run Central Bank of India (CBI) is not planning to increase its lending rate even though it has been witnessing an uptick in cost of funds following RBI’s liquidity tightening moves, a top official said today.

“Last two months, we have seen an escalation in cost of funds. But whether this is going to result in a change of base rate, I don’t think so as of now,” its new chairman and managing director Rajeev Rishi told reporters.

He said the bank may think of raising the base rate or the minimum rate of lending as and when a need arises.

“Our base rate is at 10.25 per cent and I am comfortable as of now,” Rishi said.

It can be noted that the Finance Ministry is against the hiking lending rates in times of a slowdown in economic growth. A couple of banks, including Union Bank of India and Andhra Bank, have hiked their offerings in the recent past, though.

However, most private sector banks like ICICI Bank, HDFC Bank and Axis Bank have hiked their rates following the RBI moves.

A delay in passing the increase in cost of funds can impact a bank’s net interest margin for the particular period, and hence affect the profitability.

Rishi said so long as the bank is able to protect its NIM —— it reported a NIM of 2.68 per cent in Q1 —— it will not react in a “knee-jerk” fashion to raise the lending rates.

Pressure on the cost of funds is emanating from the RBI’s liquidity tightening moves starting July 15 aimed at curbing speculation in the forex markets. The moves, which include a cap on the bank’s overnight borrowing, have pushed up rates in the money markets.

Meanwhile, Rishi said the asset quality is the primary focus for him and added the bank is putting in extra efforts on the recoveries front to bring down gross bad loans to 5 per cent by March from over 6 per cent now.

The stress will continue for at least the next two quarters, he said.

The bank has applied for capital infusion from the government, Rishi said but declined to give an exact amount which it has sought. “As of now we are comfortable with tier—I capital, which is above 8 per cent,” he said, adding he expects funds to come in by December.

Source: thehindubusinessline


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