Bank CEOs have urged the Reserve Bank of India (RBI) to raise their capital market exposure limit at a meeting with governor Sri D Subba Rao. The bankers also shared their views with the regulator on the timing of the next interest rate hike, and asked for more clarity on loan pricing under the new base rate system that would come into effect from July 1.
The bankers used the customary pre-policy meeting to discuss other issues like priority sector advances and loans against shares. They said RBI should tweak the rules on capital market exposure, currently capped at 40% of a bank’s net worth. This includes loans and guarantees to brokers, direct investment in stocks, investment in venture capital funds as well as loans against shares to individual as well as corporates and promoters.
Banks have asked RBI to exclude loans against shares to individuals and additional stock collateral pledged by corporates to borrow from the capital market exposure limit.
Mr Subbarao sought banks' views on whether growth would suffer if rates were raised. Some bank CEOs felt spiralling oil prices and gradual rise in demand call for a 25-basis-point increase in policy rates and cash reserve ratio while the CEO of a large bank said that higher rates could slow down recovery. Bankers were also divided on the kind of loan delinquency that could hit their books this year.
They spelt out that margins will come under pressure as more interest will have to be paid on savings account deposits—from April 1, interest on savings account is being calculated on a daily basis against the earlier practice of paying interest on the minimum balance held between the 10th and last day of the month. Banks pay 3.5% on savings accounts, a rate fixed by RBI. A hike in CRR, they said, would further squeeze margins.
According to bankers present in the meeting, RBI was told that all lenders need to link the `base rate' to a standard deposit bracket, failing which there would be confusion. RBI has given banks the freedom to pick the deposit tenure while fixing their respective base rates.
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