Public sector bank chiefs said they would consider cutting lending rates over the next month, following their meeting with Finance Minister Pranab Mukherjee today.
“We have not given any directives. Banks have agreed to explore the possibilities of cutting rates,” Mukherjee told reporters after the meeting, which was attended by chief executives of nearly 20 public sector banks, as well as representatives of India Infrastructure Finance Company Ltd.
“As a financial intermediary, the banks have to stand by to provide credit at reasonable rates. The reduction in policy rates by the Reserve Bank of India is not being adequately reflected in the reduction of Prime Lending Rates of banks,” Mukherjee added.
"We expect interest rates to head southwards," said Finance Secretary Ashok Chawla. He, however, refused to specify how much banks were expected to cut or the time frame within which such a move could take place.
However, O P Bhatt, chairman of State Bank of India, India's largest bank, indicated the possibility of cutting lending rates by next month. RBI deputy governor-designate and Chairman of Punjab National Bank K C Chakrabarty said: “There is need for interest rate cuts and banks will try to have a softer interest regime."
United Bank of India also foresees scope for banks to cut interest rates 25 to 50 basis points. "Only after a comprehensive meeting with stakeholders can we finalise the possibility of rate cuts," said UBI Chairman Satish Gupta. "However, rate cuts can take place in the next two or three weeks."
"We have agreed to explore the possibilities of cutting rates without compromising our profits," confirmed S A Bhat, chairman and managing director, Indian Overseas Bank.
Between September 2008 and April 2009, the Reserve Bank of India (RBI) has cut key policy rates over 400 basis points. However , industry and the government have constantly complained that these rate cuts have not led to a commensurate decrease in lending rates by banks.
With the cost of borrowing still high, bank credit growth have taken a hit. Data released by the central bank last Thursday showed that year-on-year bank credit growth dropped to 15.86 per cent for the fortnight ended May 22, against 17.20 per cent rise in the previous 15 days. This is the lowest rise in the past five years.
