Banks facing problems due to high interest rates: Assocham

NEW DELHI: Banks are facing a twin-crisis of high bad loans and a very small margin between their lending and deposit rates, because of the prevailing high interest rate scenario in the country, an Assocham study today said.

"The best of the days for the banks in terms of enjoying a huge margins between the fixed deposit and lending rates have disappeared with the spreads narrowing down to 125-150 basis points (bps) in the last few months from a peak of 875 bps in 2009-10," it said.

Assocham said the scheduled commercial banks have never saw such a narrow spread between the fixed deposit rates ( FDRs) and the lending rates since 2000-01.

"The trend does not seem to augur well for the industry as it wants the RBI to cut interest rates which are eating into growth," it said.

The industry body said that under the given set of market, cutting deposit rates would not be easy as banks are finding it difficult to mobilise savings from people.

"In a way, it seems to be a vicious circle- high inflation particularly of food and the wage inflation dissuades the public from investing in the fixed deposit rates," it added.

The study said that the banks find a twin problem of increasing NPAs and the narrowing spread between the FDRs and the lending rates.

"We are facing a peculiar difficult position that even though the RBI may be willing now to tweak the policy rates along with the Finance Ministry keeping a leash on the fiscal situation, high deposit rates are an issue," Assocham President Rajkumar Dhoot said in a statement.

Dhoot asked the Finance Minister to incentivise the depositors so that more funds are channelised into the FDRs.