The Reserve Bank of India (RBI) chief said on Friday that banks need to increase their deposit rates and reduce lending rates to accelerate the savings, investment rate and boost a double-digit growth. "This means banks need to raise the interest rates offered to depositors and reduce the lending rates charged on borrowers - in other words, reduce their intermediation costs, or in technical terminology, reduce the net interest margin (NIM)," Duvvuri Subbarao said in a speech on Friday.
There is a need to raise the level of national savings and channel those into investments to achieve double- digit inclusive growth, he added. Subbarao said that Indian banks' NIM was still higher than their peers in other emerging market economies even after accounting for mandated social sector obligation.
"Banks are short of funds and probably the direction that the RBI governor wants to give is to banks to lend more. Since banks don't have much resources, there is still scope for hike of 25-50 basis points in deposit rates, said Sandeep Shah, head of equity sales and research ar Tower Capital. Indian bank loans rose 22 percent on year as of Nov. 5. The growth is in line with the RBI's projection of 20 percent by March end but deposit growth at 15.3 percent as of early November lags the RBI's projection of 18 percent.
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