While RBI insiders maintain that the meeting is an annual ritual, seniorbankers feel Sinha will use this opportunity to persuade the central bank tocross the Rubicon and announce a cut in the benchmark bank rate without anyfurther delay. Bankers, however, are not ready to bite the bullet and cutlending rates.

Ever since Sinha announced his budget, the finance ministry has beenmounting pressure on the RBI to effect a rate cut. The central bank has notyet "succumbed" to the pressure as its prime concern -- it seems -- is to protectthe bottomlines of public-sector banks. Sinha has brought down the cost ofborrowing for corporates by abolishing the interest tax and sent a strongsignal for a lower interest-rate regime by cutting the general PF rate byone percentage point (with effect from April).

He repeated his "plea" for a rate cut at the CII and Ficci fora after thebudget and his deputy V Dhananjaya Kumar followed it up on Thursday saying:"The RBI will be coming out (with a rate cut) very soon." Amid confusion andfalling yields on gilts, the finance ministry clarified that the decision ona cut in interest rates was up to the RBI.

The stance of the RBI so far is: it is "watching all factors" and "will notdelay in (taking) action" if the time is ripe for a rate cut. "The financeminister has strongly demonstrated some progress in imparting interest rateflexibility in the system. We are watching all relevant macro variables aswell as market conditions. The timing of the rate cut is not necessarilylinked to monetary policy announcements," RBI deputy governor YV Reddyrecently told The Financial Express.

Last year, the central bank cut the bank rate as well as banks' cash reserveratio (CRR) within 24 hours after the presentation of the Union budget forfiscal 2000. Commercial banks reciprocated the RBI move by slashing theirprime lending rates by 50 basis points. The rest of the year witnessed averbal duel between former finance secretary Vijay Kelkar and RBI governorBimal Jalan on whether or not interest rates should be cut further.

This time around, the RBI has been slow in its response and may announce abank rate cut in the first week of the new financial year to coincide withthe GPF rate cut. Banks, however, are not quite happy with the idea. "Unlessthe RBI follows an arm-twisting policy, no bank is in a position to cutlending rates. The bank-rate cut does not signal a lower interest rateregime as banks' deposits rates are still higher than the benchmark bankrate (8 per cent)," said the chairman of a large public-sector bank."There is no case for a lending rate cut. The paring of PPF and GPF rates isa correction which has been long overdue," said another banker.

Despite muted protests from banks, the RBI may cut the bank rate to ensurethat the large borrowing programme of the Government, which has gone up toRs 1,12,275 crore in 2000-01 from Rs 1,08,898 crore in the current financialyear. Deputy governor Reddy said this is "manageable" provided there is no"slippage" in the borrowing programme.

"The size of the Government's gross borrowing programme is bigger than theannual deposit mobilisation of the banking sector. Logically, the lendingrate cannot come down in such a situation," pointed out a banking sectoranalyst.