largest banks in India are fighting for the tanks

largest banks in India are fighting for the tanks as they fall behind the demand for loans in the midst of crisis the nation's most effective in history.

State Bank of India raised rates a year at 175 basis points, or 1.75 percentage point from July 30 to 20-month high of 7.75 percent, while Housing Development Finance Corp. added 75 to 7.95 percent. The average deposit growth of 15.3 percent during the period behind an increase of 21.1 percent of the loans, according to the monetary authority.

overnight rates to one month of credit in the third largest economy in Asia increased by 142 basis points to 8.37 percent this quarter and 223 basis points in China to 5.74 percent. The rates offered by banks are too low, robbing the economy of a source of funds to boost growth, Reserve Bank of India Governor Duvvuri Subbarao, who has overseen six increases in borrowing costs reference this year, told a conference of bankers "on 3 December.

"The process of depositing funds rates has begun, but has not progressed far enough to ease the cash shortage," said Krishnamurthy Harihar, treasurer at Mumbai-based FirstRand Ltd., a unit of the second largest bank South Africa. "Deposit rates have to rise much more to help banks build up enough liquidity."

The shortage of funds

The shortage has forced lenders to turn to the Reserve Bank for funds every day since 9 September. Banks borrowed a record 1.7 trillion rupees ($ 38 million) on 22 December, central bank data show.

Subbarao said on December 9 is "fully aware" of the difference in cash, which worsened as companies raised a record 1.16 trillion rupees this year by selling shares. Reserve Bank pumped about 300 million rupees in the financial system this month for the purchase of government bonds.

Savings Bank of India have risen 14.9 percent since late 2009, prepared for the lowest annual increase since 2003, according to official data. The equivalent increased 18.6 percent in China in the first 11 months of 2010.

lenders in India have to offer higher deposit rates after the average inflation rate increased almost six times this year to 9.5 percent, Tejendra Mohan Bhasin, president of Bank of India, a state-owned bank based in the southern Indian city of Chennai, said in an interview on 22 December.

"Deposit rates are in line with inflation and liquidity," said V. Srinivasa Rangan, executive director at Mumbai-based HDFC the India's largest home lender, said in an interview on 22 December.

C. Ramnath, headquartered in Mumbai, Chief General Manager in State Bank, India's biggest lender, declined to comment on the increase in deposit rates.

Rate War '

"The banks are stretching their balance sheets to finance credit growth," wrote Suresh Ganapathy and Painuly Mudit, the Mumbai-based analyst at Macquarie Group Ltd. in a research report earlier this month. Deposit rates need to go through another 50 basis points to 100 basis points, as banks can enter into a "war of rates," the authors wrote.

The cost of money to set rates for three months rose 285 basis points this year to 6.8 percent in the market for interest rate swaps. Overnight lending rates between banks in an average of 6.5 percent this quarter, up from 5.4 percent in the last three months.

three months of India Treasury yields have risen 358 basis points this year as the Reserve Bank raised its repo rate by 150 basis points. The comparable measure rose 244 points to 11.11 percent in Brazil and 8 basis points to 0.13 percent in U.S. rates in similar notes People's Bank of China increased 199 basis points to 3.31 percent.

Bond Reduction

money market rates can allow the Government to increase spending to meet the objectives before the fiscal year ending in March, said Debendra Kumar Dash, a bond trader based in Mumbai Development Credit Bank Ltd.

"Rates of night will come by about 25 basis points, if conditions improve in cash in January, the board said in an interview yesterday.

10 years of India's bond yields fell for a second straight day. The yield of 7.8 percent notes due May 2020 fell four basis points to 7.89 percent. The rate has risen 30 basis points this year.

Government bonds in India returned 5.1 percent this year, compared with 19.7 percent in Indonesia and 12.2 percent in the Philippines, according to indexes compiled by HSBC Holdings Plc.

"No choice"

The rupee fell 0.1 percent to 45.1850 per dollar today. The currency has appreciated by 3 percent this year, the fourth worst performance among Asia's 10 most-traded currencies.

Swaps credit-default in the State Bank of India increased four basis points to 160 points this week, according to data provider CMA. these operations are often paying the buyer face value if a borrower defaults on its obligations, less the value of the defaulted debt, and rise as perceptions of credit quality deteriorate.

"There is no choice but to increase deposit rates as banks face stringent liquidity conditions," said Yeshwant M. Deosthalee, president and CEO of L & T Finance Holdings Ltd., a unit of the largest engineering company in India, in an interview in December 22.