RBI says interest rates for short term loans may go up

MUMBAI: Interest rates in the economy are likely to remain stable but as liquidity dries up banks may hike the lending rates of short term loans to companies, which are often mispriced, a top central bank official today said.

"Overall interest rates will remain the same... (However) segments, where interest rates are mis-priced, you could see some increase...like in short term corporate loans," Deputy Governor of the Reserve Bank of India K C Chakrabarty told reporters here.

Chakrabarty was referring to the practice of banks lending to customers, primarily corporate clients, at rates that are lower than their benchmark prime lending rate (BPLR) or sub-PLR rates.

Many banks have seen a revival in demand for corporate loans in the recent months on the back of economic recovery propelled by the stimuli provided by the government.

Bankers had opined that given the modest credit offtake in the market, hiking their lending rates would hamper the reviving demand and thus impact their interest earnings.

Following earlier-than-expected economic recovery but amidst galloping food inflation, the RBI, in its third quarterly monetary policy review on January 29, begun an exit from the easy money regime by upping cash reserve ratio-- the amount of money banks have to keep with the RBI to meet prudential norms- by 0.75 per cent to 5. 75 per cent.