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Inflation control dominates banker-RBI meet

Mumbai: Containing inflation was the highlight of the discussion between bank chiefs and the Reserve Bank governor at a scheduled meeting ahead of its April 20 policy review today, the head of a banking lobby told reporters. Liquidity in the system was adequate to meet credit demand, and the bankers have indicated that a rate hike would be preferable to an increase in cash reserve ratio (CRR) to contain inflation pressures, he added. "Today overall concern was on inflation. Inflation containment measures should be there. The priority is containing inflation now," M V Nair, chairman, Indian Banks' Association said today. "On concerns of banks, we said there will be pressure on margins in terms of savings bank rate as well as in case CRR goes up, as there is a cost involved," Nair said. The Reserve Bank of India is expected to raise policy rates by 25 basis points at the April policy review after surprising markets by beginning the rate hike cycle from record-low levels on March 19, a Reuters poll showed. Nair is also the chairman of state-owned Union Bank of India. The RBI has asked banks to offer 3.5 per cent on savings bank deposits by calculating on a daily balance basis from April 1. Earlier, banks paid interest on such deposits based on the average amount in the last 20 days of a month, which works out to about 2.5 per cent. Bankers also told RBI Governor D Subbarao that they don't intend to raise lending rates till April policy and will decide on further action after the monetary policy review, Nair added. Last week bankers had told Reuters that they will inform Subbarao about keeping rates unchanged for the next one month and that they expect the central bank to raise rates and not CRR to contain inflation expectation. The participants in the meeting included the chiefs of State Bank of India, ICICI Bank, Punjab National Bank, Bank of Baroda, Canara Bank, Union Bank of India, IDBI Bank, HDFC Bank, Standard Chartered Bank, and Citibank. Nair said bankers have told RBI that they expect credit and deposit growth at 20-22 per cent in 2010-11. Federal Bank Chief Executive Officer and Managing Director M Venugopalan who was also at the meeting said bankers expected non-performing assets to be lower as the economic recovery gathers pace.