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Jayant Sinha, minister of state for finance, on Wednesday said public sector banks (PSBs) would cut lending rates to pass on the benefits of the Reserve Bank of India (RBI)’s latest repo rate cut to customers. “We have a very competitive financial services sector. We will see once certain banks start taking action, others will follow,” Sinha told reporters on the sidelines of Finance Minister Arun Jaitley’s quarterly review meeting with PSB chiefs.
“First, with respect to the rate cut, we had a discussion on RBI’s actions and we tried to understand exactly what banks are thinking about that. The banks pointed out what they had already done. As far as retail loans are concerned, they have already brought down rates a fair bit,” he said.
Reuters quoted Bank of India Chairman V R Iyer as saying, “Banks prefer to wait for the April policy (April 7) before taking a decision on interest rates. There is a possibility of a 10-20 basis point cut after that policy meet.”
On March 4, days after the Union Budget was presented in Parliament, RBI Governor Raghuram Rajan cut the repo rate by 25 basis points. However, there has been concern banks aren’t transmitting the rate cuts to industry, middle-class consumers and other stakeholders.
At Wednesday’s meeting, bankers apprised Jaitley of various performance parameters such as profitability, net interest margin, credit growth and the percentage of bad loans on the books for the quarter ended December 2014, according to a finance ministry statement.
“In 2014-15, approvals were given to seven PSBs to raise capital from the market. The government’s decision to reduce shareholding in PSBs to 52 per cent will give these banks headroom to raise capital from the market. All these efforts are being undertaken to allow PSBs to meet Basel-III capital requirements,” the release added.
On joint lenders forums (JLFs), set up to resolve the funding woes of stalled infrastructure projects, Jaitley was informed between July 1, 2014 and February 26 this year, 355 JLFs had been formed by banks, of which 254 were by PSBs (State Bank of India accounted for 107 of these).
“During the period between April 2014 and January 2015, PSBs received 88 new projects/proposals, with a total investment of Rs 1.41 lakh-crore. These are in various stages of appraisal, sanction and stage-wise disbursements,” the release said.
On non-performing assets (NPAs), Sinha said the government was considering a host of measures to address rising NPAs in the banking sector.
“We discussed the NPA issue (and) the situation in stalled projects. There are a variety of measures we are planning to undertake, as far as stalled projects are concerned. We are also thinking about ways to resolve the NPA situation more speedily,” he said.
The NPAs of PSBs rose to 5.33 per cent of total advances in September 2014 from 4.72 per cent in March 2014.
The Economic Survey 2014-15 had said unfavourable market conditions and delayed investments through the past few years had resulted in an “alarmingly high rate” of rise in stalled projects. At the end of December 2014, these projects were valued at Rs 8.8 lakh-crore.
At the meeting, Jaitley exhorted bankers to lend more to small and medium enterprises and meet their targets for the sector, as part of the Centre’s ‘Make in India’ initiative. He also pushed for increasing credit to farmers and students. Bankers were asked to make the housing segment “a priority sector for further growth of credit without concomitant fear of a rise in NPAs”, as credit growth for the sector was higher compared with overall credit growth, while NPAs were lower.
Jaitley said banks had a big role to play in the new schemes announced in the Budget, including the Pradhan Mantri Suraksha Bima Yojana, the Pradhan Mantri Jeevan Jyoti Bima Yojana and the Atal Pension Yojana.
Apart from Jaitley and Sinha, the meeting was attended by Financial Services Secretary Hasmukh Adhia, as well as other senior finance ministry and banking officials.
On setting up a proposed bank bureau, Sinha said the entity would work with banks on appointments, performance and strategies, as well as capital raising plans. He, however, added, “You must understand there are 27 public sector banks at this meeting...each bank’s situation is different. For instance, each bank has different shareholding from the government; each has a different valuation multiple, price-to-book, etc.”
Adhia said to compensate for a smaller budgetary allocation towards recapitalisation of PSBs this year, some of these banks might turn to capital markets. “We have asked banks to explore other options,” he said, adding an immediate rush to equity markets was improbable.
“First, with respect to the rate cut, we had a discussion on RBI’s actions and we tried to understand exactly what banks are thinking about that. The banks pointed out what they had already done. As far as retail loans are concerned, they have already brought down rates a fair bit,” he said.
Reuters quoted Bank of India Chairman V R Iyer as saying, “Banks prefer to wait for the April policy (April 7) before taking a decision on interest rates. There is a possibility of a 10-20 basis point cut after that policy meet.”
On March 4, days after the Union Budget was presented in Parliament, RBI Governor Raghuram Rajan cut the repo rate by 25 basis points. However, there has been concern banks aren’t transmitting the rate cuts to industry, middle-class consumers and other stakeholders.
At Wednesday’s meeting, bankers apprised Jaitley of various performance parameters such as profitability, net interest margin, credit growth and the percentage of bad loans on the books for the quarter ended December 2014, according to a finance ministry statement.
“In 2014-15, approvals were given to seven PSBs to raise capital from the market. The government’s decision to reduce shareholding in PSBs to 52 per cent will give these banks headroom to raise capital from the market. All these efforts are being undertaken to allow PSBs to meet Basel-III capital requirements,” the release added.
On joint lenders forums (JLFs), set up to resolve the funding woes of stalled infrastructure projects, Jaitley was informed between July 1, 2014 and February 26 this year, 355 JLFs had been formed by banks, of which 254 were by PSBs (State Bank of India accounted for 107 of these).
“During the period between April 2014 and January 2015, PSBs received 88 new projects/proposals, with a total investment of Rs 1.41 lakh-crore. These are in various stages of appraisal, sanction and stage-wise disbursements,” the release said.
On non-performing assets (NPAs), Sinha said the government was considering a host of measures to address rising NPAs in the banking sector.
“We discussed the NPA issue (and) the situation in stalled projects. There are a variety of measures we are planning to undertake, as far as stalled projects are concerned. We are also thinking about ways to resolve the NPA situation more speedily,” he said.
The NPAs of PSBs rose to 5.33 per cent of total advances in September 2014 from 4.72 per cent in March 2014.
The Economic Survey 2014-15 had said unfavourable market conditions and delayed investments through the past few years had resulted in an “alarmingly high rate” of rise in stalled projects. At the end of December 2014, these projects were valued at Rs 8.8 lakh-crore.
At the meeting, Jaitley exhorted bankers to lend more to small and medium enterprises and meet their targets for the sector, as part of the Centre’s ‘Make in India’ initiative. He also pushed for increasing credit to farmers and students. Bankers were asked to make the housing segment “a priority sector for further growth of credit without concomitant fear of a rise in NPAs”, as credit growth for the sector was higher compared with overall credit growth, while NPAs were lower.
Jaitley said banks had a big role to play in the new schemes announced in the Budget, including the Pradhan Mantri Suraksha Bima Yojana, the Pradhan Mantri Jeevan Jyoti Bima Yojana and the Atal Pension Yojana.
Apart from Jaitley and Sinha, the meeting was attended by Financial Services Secretary Hasmukh Adhia, as well as other senior finance ministry and banking officials.
On setting up a proposed bank bureau, Sinha said the entity would work with banks on appointments, performance and strategies, as well as capital raising plans. He, however, added, “You must understand there are 27 public sector banks at this meeting...each bank’s situation is different. For instance, each bank has different shareholding from the government; each has a different valuation multiple, price-to-book, etc.”
Adhia said to compensate for a smaller budgetary allocation towards recapitalisation of PSBs this year, some of these banks might turn to capital markets. “We have asked banks to explore other options,” he said, adding an immediate rush to equity markets was improbable.
