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BANKERS HAVE STARTED making the first squeals of the current year (two months old) not being as good as last year, with the money and forex markets being rather quiet. Over the last two years most, if not all, banks have profited on trading in government paper with an obliging central bank keeping interest rates down. With credit demand from industry and farms tapering away, the RBI's job of running the government's borrowing programme at low interest rates was made easy. This year, interest rates have remained steady at lower levels helping the government raise Rs 54,000 crore forming 38 per cent of the gross budgeted borrowings of Rs1,42,867 crore. At current market interest rates, treasury managers do not seem to be making much money while the loans and advances portfolio continues to grow at a tepid pace. If loans to oil companies are excluded, the system is not seeing any sharp pick up in demand for credit. Naturally, bankers would like to see the RBI act on its April 29 promise of cutting the Bank Rate by 50 percentage points to bring some action to the markets. Most treasury managers do not see that happening quickly, as the RBI will have to keep in view the rather tight situation on the Kashmir border.

Can banks forever rely on booming treasury incomes to enliven balance sheets when one thought their main job was to push the loans and advances portfolio? Some expect a credit pick up from October, and if that happens there may not be much profit to be made in the money and forex markets. Market interest rates are low but have not had any impact on double-digit interest rates on all types of loans, including for housing. There does not seem to be any co-relation between market interest rates and that charged by banks on advances. This has led to a situation where the revenue expenditures of the Centre and the States are being funded by cheap market funds while investment activity is denied any such favours. High cost of deposits, steep transaction costs and NPAs do not prevent banks from placing monies in government floats even when negative spreads stare at them. In the last Credit Policy, the RBI told banks to come out with details on spreads, "in the interest of customer protection as also meaningful competition". They were told to provide information on deposit rates and the effective annualised return apart from placing in public domain the maximum and minimum interest rates charged to their borrowers. Banks were also instructed to "explicitly" declare processing and service charges levied on borrowers. More than a month after, banks have been stingy on such details. Is it unfair to ask the RBI to get its diktat running as high interest rates could be preventing an upward spiral in capital investment?

Yet, this is an issue on which bank chairmen turn cagey. Today, top banks are talking of a second VRS to bring down costs though interest rates on loans did not drop after the first VRS sent home some 10 per cent of the total bank work force. Over the last couple of years banks have done little to identify fund demand in the farm and services sectors; one bank is more or less the same as the other. When one bank started on retail loans, the entire tribe turned retail, charging 12-13 per cent with stiff collaterals being insisted upon on a uniform basis. All banks seem to look and work alike with nothing having changed in the banking system.

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