Faced with the growing rate on inflation and the high cost of borrowing funds from the Reserve Bank of India, several top bankers of the country met with the RBI officials and conveyed their concerns on the prospective margin pressures and rise in bad loans. The bankers also discussed about the tough business environment created due to the high inflation.

A delegation of bankers which was headed by Indian Banks' Association chairman T S Narayanasami had met the RBI brass comprising deputy governors Rakesh Mohan, P Leeladhar and Shyamala Gopinath. The interaction was held as a part of the consultations prior to the first quarter review of RBI's annual policy for 2008-09 scheduled on July 29, 2008.

The main issues discussed during the course of this meeting were — the rising global crude oil prices, sharp increase in inflation after oil companies hiked prices, pressure on margins and non-performing assets. The bankers also expressed their concerns over the fundamentals of the Indian economy.

The delegation unanimously felt that the growth rate of the country would drop from 9 percent. H N Sinor, chief executive, IBA, who attended the meeting said, the economy could grow eight per cent in 2008-09.

He also felt that the rising inflation is proving costly for the banks as they have begun to feel the pressure on their margins. Banks have raised the deposit rates to provide attractive returns for garnering resources, but they could not immediately jack up the lending rates, Sinor added.

Also, a banker revealed that the meeting discussed the possibility of an increase in NPAs. He said, besides erosion in interest margins, some of the advances could turn into non-performing assets when costs shoot up and demand slumps.

The biggest worry of the bankers seems to be rise in NPAs. Bankers fear an increase in defaults, especially on unsecured personal loans and credit cards, due to rising interest rates. Over the last five years, retail loans have been the biggest drivers of credit growth. A bank chief said that some of the loans given to companies may also turn non-performing.