Mumbai:  Experts of Indian banking industry feel that, the currently prevailing high interest rates are going to soften by at least 25 basis points if the Reserve Bank of India (RBI) decides not to hike the Cash Reserve Ratio (CRR). A monetary policy review by RBI is expected on January 31 this year and how the apex banking regulator decides on the various rates will go a long way in deciding the level of interest rates in the next quarter.

An increasing Rupee against the US Dollar is cited as another indication of a reduction in interest rates. On the impact of the US sub-prime crisis, which is expected to impact China and other South East Indian economies in a big way, banking experts feel that it won't have that much effect on India because unlike these countries India is not completely an export based economy.

The high interest rates have particularly affected the credit off-take in home loan and auto loan segment. Small ticket personal loans, which charged a very high rate of interest particularly for the sub-prime segment have witnessed a very high delinquency rates during the last few years.

Though experts believe that there will be a decline in home and personal loan interest rates, the scenario in auto loan segment will remain the same. The two-wheeler loan segment has performed very poorly during the last year, while there has been some demand for car loans. A lack of demand is being cited as one of the reasons for the interest rates not softening for auto loan segment.

During the last monetary policy review RBI had increased the CRR to absorb the excess liquidity in the system. This had in fact mopped up an estimated 16,000 crores from the market. Though the banks kept their interest rates at the same level even after the CRR hike, the pressure to meet the credit targets had forced them to offer festive discounts. The State Bank of India had offered the discounts till 31st December, which was later matched by ICICI Bank. In an effort to lure in more borrowers, these two banks have now decided to extend the reduced interest rates on various loans till 31st January 2008.