RBI deputy sees no steep fall in rates

NEW DELHI (Reuters) - Long-term interest rates in India are unlikely to come down drastically as the economy needs to raise its savings rate to sustain a growth rate of 8 percent, a designated deputy governor of the Reserve Bank of India (RBI) said.

India's high savings rate of 35 percent is seen by the government as a key factor in restoring growth rates of 8-9 percent even if the global economy does not pick up.

The economy grew 6.7 percent in the year to March 31, the slowest in six years, a pace below the nine percent or more expansion witnessed in the past few years.

But Kamalesh Chandra Chakrabarty, who will join the RBI on Monday, said on Saturday the current savings rate were not enough to sustain the high levels of growth.

"To sustain growth it must be taken to at least 40 percent. That can talk much of the (possibility of) reduction in interest rates and deposit rates," Chakrabarty, currently chairman of state-run Punjab National Bank, told a news conference.

"Let us understand, we cannot afford to disincentivise the saver. So in the long term I don't see, under the present structure, interest rates going down very drastically."

India's finance minister last Wednesday called on state-run banks to consider providing cheaper credit to drive growth, saying sharp rate cuts by the central bank were not reflected in lower borrowing costs for customers and industry.

Banks' main lending rates have come down by between 150-225 basis points in the six months to June. The RBI had cut its key rate by 425 basis points since October to 4.75 percent.

Indian banks generally respond to signals from the finance ministry, but a slowing economy has made them wary of lending actively due to concerns about a rise in consumer delinquencies.