Bank credit could push rates: Kochhar

ICICI Bank, the country's largest private sector bank, on Tuesday said there was pressure on interest rates following Reserve Bank of India (RBI) intervention to check inflation, and that loans may cost more with pick up in credit.

"There is an upward bias on interest rate. How they move up, to what extent they move up and at what rate they move up, will partly depend on how credit growth rate in the system picks up," CEO and Managing Director Chanda Kochhar told PTI.

RBI had earlier this month raised key rates at which it lends (repo) and borrows (reverse repo) short-term capital from commercial banks by 25 basis points, in its bid to tame inflation.

"Clearly, the fact is the liquidity is being managed tightly. The fact is deposit cost have gone up and therefore, as credit demand picks up, there would be upward bias on interest rate," she said.

Asked if there is pressure on liquidity, Kochhar said: "There were phases last year where we had excess liquidity. We are tightly managing liquidity now."

Liquidity had also come under pressure owing to the huge public issue of Coal India Ltd a few weeks ago. Besides, a surge in spending during the festival season also put pressure on liquidity.

State Bank of India chairman O P Bhatt, too, had said interest rates were under pressure and might push up the rates.

"Interest rates have a slightly upward bias...Liquidity combined with some more credit offtake may push up interest rates," he had said at the India Economic Summit 2010 held in the national capital.

Punjab National Bank (PNB) CMD K R Kamath, too, had said recently banks might have to raise deposit rates to garner savings to meet the credit growth.

Increase in deposit rate raises cost of funds, eventually translating into higher lending rates.

To ease pressure on the banking system, RBI recently announced special liquidity easing measures, allowing banks to dip into their SLR (statutory liquidity reserve) portfolio by 1 per cent.

According to the measure, banks would be able to avail of more funds under the liquidity adjustment facility (LAF) for up to one per cent more on their deposits.

"For any shortfall in maintenance of statutory liquidity ratio (SLR) during November 9 - December 16, arising out of availment of this facility, banks may seek waiver of penal interest purely as an ad hoc, temporary measure," RBI had said in a statement.