Banks expect interest rates to rise by 0.5-1 pc : survey

New Delhi--A survey conducted by industrial body FICCI of 50 banks has revealed that domestic interest rates are likely to go up by 0.5-1 percent due to rate hikes in other countries and high oil prices. 

An increase in interest rates between 0.5-1 percent due to rate hikes in other countries and firming up of oil prices, a further fall in gross NPAs due to adoption of global best practices in credit risk management and a rise in retail portfolio over 25 percent this year are some of the main findings of a Ficci survey on status of Indian banking.

Ficci survey on status of Indian banking. Reserve Bank has been following a policy stance of imparting flexibility to interest rate structure by keeping the key parameter's unchanged - Bank Rate (6 percent), Repo Rate (5 percent) and Cash Reserve Ratio (5 percent).

However, Ficci said it will be an uphill task this year to maintain the current level interest rates especially in the wake of hike in interest rates in other countries and firming up of oil prices.

"The increased interest rates are likely to have an adverse impact on the corporate sector lending to some extent specially the 'AAA' rated borrowers," said majority of the over 50 public, private and foreign banks surveyed.

Banks have made substantial progress in cleaning up the NPAs from their balance sheets thanks to the success of financial sector reforms, regulatory and supervisory process.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act and high provisioning on doubtful debts resulted in reduction of NPAs.

The survey noted that retail credit is growing by an average 33 percent per annum due to IT revolution, financial market reform and demand and supply factors.