Govt wants banks to cut rates; lenders seek further RBI easing

Government is believed to have asked public sector banks today to consider lowering their interest rates, even as some lenders want further signals on RBI's monetary policy before passing on the benefits to their retail and corporate borrowers.
The issue of lowering interest rates was discussed today in a meeting of heads of all state-run banks and other financial institutions, which was chaired by Finance Minister Arun Jaitley and attended by top Finance Ministry officials as well as representatives of RBI, SIDBI and NHB, among others.
While there was no official word on whether the banks were nudged to cut rates, sources said that the government impressed upon them to consider interest rate easing while taking into account their cost of funds and other factors.

The meeting followed RBI cutting its key policy rate by a cumulative 0.5 per cent in the last two months, including a 25 basis points cut announced last week. However, only a few banks have lowered their rates since January 15, when RBI announced the first of its two successive rate cuts.
After the meeting, Minister of State for Finance Jayant Sinha said, "First with respect to the rate cut, we obviously had a discussion on RBI's actions... And we tried to understand exactly how the banks are thinking about and the banks pointed out what they have already done."

"As far as retail loans are concerned they have already brought down rates a fair bit, we discussed that," he said.

Asked when banks can cut their base rates, Sinha said "Let's wait and see how that (repo rate cut) plays out... We will see once certain banks starts to take action we will see how it unfolds."
Some of the banks, however, said that they would wait till the next bi-monthly monetary policy review of the RBI on April 7 before taking any rate cut decision.
"Coming April, after seeing RBI monetary policy statement, banks can start considering reduction in the rate... We can reduce anywhere from 10 basis points to 25 basis points," Bank of India Chairman V R Iyer said after the meeting chaired by the Finance Minister.

"The transmission will definitely take place... Banks also have to keep asset quality in mind (before passing on the benefit of rate cut). That is a guiding factor for any bank to reduce lending rate," Iyer said.
Sinha also said India has a very competitive financial services industry.