New Delhi: State-run banks are unlikely to raise interest rates after the central bank tightened bank reserve requirements this week, finance minister Palaniappan Chidambaram said on Thursday.

“By and large banks have welcomed and appreciated the stance of the RBI. They were quite happy that only the CRR had been hiked and policy rates have been untouched,” Chidambaram told reporters after meeting chiefs of state-run banks.

“They do not expect the CRR hike to impact the interest rates. So going forward in the reasonable future I don’t expect any increase in interest rates by state-run banks.”

Chidambaram, who reviewed the performance of state-run banks, said they had reported loan growth of 24.5% in the fiscal year ended March.

Farm loans grew 23.33% and personal loans were up 16.3%. Among the personal loans segment, housing loans grew 16.44% and vehicle loans 23.01%.

Chidambaram also said state run banks’ gross nonperforming assets ratio declined to 2.17% in the fiscal year ended March from 2.7% in 2006-07 and net bad loans dipped to 0.98% from 1.1%.

India had 82 commercial banks, including 29 foreign banks, and nearly 3,000 urban and rural cooperative banks as of March 2007. The sector is dominated by state-run banks.

The finance minister said he expects the state-run banks to perform strongly in 2008-09, the current fiscal year, and urged them to review their derivative portfolios and make sure customers understand them fully.

Several Indian firms are taking their banks to court over foreign exchange derivatives trades which have gone sour, alarming policymakers and casting a pall over a growing but still underdeveloped area of the market.

Indian companies may lose $4 billion on derivatives, according to estimates by the Hong Kong-based brokerage CLSA Ltd.

In its second move in just a few weeks to drain liquidity from the banking system, the Reserve Bank of India (RBI) on Tuesday raised the cash reserve ratio (CRR) by 25 basis points to 8.25%, its highest level in seven years, with effect from May 24.

The central bank also signalled that it was ready to act again if price pressures continued to build.

Wholesale inflation, India’s main measure, is running at more than 7%, close to three-year highs.

Source : DNA