Interest rates in India seen declining - bankers

MUMBAI (Reuters) - Interest rates in India are seen coming down as the recent monetary and liquidity-related measures undertaken by the Reserve Bank of India reduce the pressure on banks to raise high-cost deposits, top bankers said on Sunday.

On Saturday, the Reserve Bank of India cut the repo rate or its main short-term lending rate by 50 basis points to 7.5 percent and banks' cash reserve requirements (CRR) by 100 basis points to 5.5 percent.

The Reserve Bank cut banks' bond reserve requirements by 1 percentage point to 24 percent of their deposits with effect from November 8, 2008.

The move to cut rates on Saturday follows a 100-basis-point cut in its main short-term lending rate last month.

"With the CRR and the repo rate cuts, there is additional elbow room for banks to lend," said K. Ramakrishnan, chief executive of Indian Banks' Association, which represents more than 160 banks.

The CRR has released a lot of money into the coffers of the banks and therefore the cost of funding should also come down, he said adding most banks would take a call on their interest rates over the next week.

The latest CRR cut would release 400 billion rupees into the system, on which banks were not earning any interest, said M.V. Nair, chairman and managing director, Union Bank of India.

He also said the cut in bond reserve requirement would release another 400 billion rupees into the system.

"It's a clear indication that there is a downward spiral in interest rates as the pressure for raising deposits at substantially higher rates has reduced," he said.