Rate woes: Bankers worried about rising loan defaults

By Nupur Acharya, CNBC-TV18:

It is customary for top bankers to meet the Reserve Bank of India, or RBI, Deputy Governor ahead of every Credit Policy to give their views on the banking system. With the next policy review due on July 29, the Indian Banks' Association represented by SBI Chairman OP Bhat, Bank of India Chairman Narayansami, Bank of Baroda Chairman M D Mallya, HDFC Bank Head Aditya Puri, and Bank of America Head Vishwavir Ahuja. While bank chairmen were tight-lipped on any cues they got from RBI, IBA CEO HN Sinor, who was also present at the meet, said impact of infaltion and high global crude oil prices dominated the meeting. Despite these challenges, bankers were equivocal about economic fundamentals remaining strong.

HN Sinor, Chief Executive, IBA, said, "There is complete unanimity among bankers that growth fundamentals are strong, though there are some areas of concern."

The concern appears to have centered around possible higher loan defaults because of rising rates. "Bankers say they are closely watching their retail loan portfolios," Sinor added.

Though it was a only 15 days ago that Reserve Bank hiked the borrowing rate for banks and the cash reserve ratio by half a percentage point, inflation fears still loom large. So, even bankers are unsure whether RBI will act once again to rein in inflationary expectation at or before its July 29 policy.