India asks state-run banks not to up mortgage rates

Mon Feb 5, 2007 8:45am EST

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NEW DELHI Feb 5 (Reuters) - India's finance minister on Monday asked state-run banks not to raise home loan interest rates after last weeks' central bank rate rise, and also to shift lending away from sectors where authorities want to curb credit growth.

Speaking after a quarterly review meeting with the chairmen of the state-run banks, Palaniappan Chidambaram also said that there was ample cash in the banking system, easing the pressure on the banks to raise rates.

"I have requested them to rebalance portfolio or moderate credit growth to risk-prone sectors," Chidambaram told reporters.

"I have also requested them to hold interest rates on home loans and not to raise it," he said, adding the banks had assured him they would not raise mortgage rates and would rebalance their loan books over the next six months.

Last week, the Reserve Bank of India raised its key short-term lending rate to 7.50 percent, its highest in four years.

It also raised the provisions for bank loans for capital market exposures, credit cards, personal loans and real estate -- but it excluded home loans from the additional provisioning.

Some of the state-run banks have raised deposit rates after the central bank rate rise, but they have not raised lending rates.

Asked whether state-run banks could raise their lending rates, Chidambaram said loan rates depended on factors such as the cost of deposits, credit growth and cash in the system.

"Liquidity is ample," he said.

Data released by the central bank on Friday showed bank credit grew an annual 29.7 percent for the week to Jan. 19.

Chidambaram said the annual credit growth of state-run banks was 32.5 percent in December 2006, faster than deposit growth of 22.5 percent in the same period.

((Reporting by Rajkumar Ray; editing by Mark Williams and John Mair; Reuters Messaging: unni.krishnan.reuters.com@reuters.net; +91-11-4178-1012)) Keywords: INDIA ECONOMY/RATE

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