With banks shying away from passing on RBI rate cut benefits, Finance Minister P Chidambaram today asked them to review their minimum lending rates or base rates so as to bring the cost of borrowing down for consumers.
The Reserve Bank has reduced its key short-term lending rate (repo) by 1.25 percentage points since January 2012, but banks have passed on only 0.30 per cent to consumers.
"We have asked them (PSU banks) to take a look at their base rates. I have impressed upon the bankers, as the RBI has cut the policy rates by 125 basis points, ...Some part of this must indeed be passed on to borrowers," he told reporters after his meeting with heads of PSU banks.
He said all the banks have assured that they would review their base rate this month and they will take appropriate decision on cutting the base rate.
"In my view, reduction in base rate would be a powerful booster to the economy, powerful stimulus to credit growth," the Finance Minister said.
Chidambaram's plea to bankers, however, did not cut much ice with the largest lender SBI saying there was little scope to reduce base rate as they are the lowest in the market.
Bankers said they are constrained to pass on the rate cut benefit because of higher provisioning norms as well as due to increase in their own borrowing cost by up to 0.5 per cent.
Chidambaram said while base rate of SBI was 9.7 per cent, the average for other PSU banks is 10.2 or 10.25 per cent.
Meanwhile, Bank of India has announced to cut its base rate from 10.25 per cent to 10 per cent from July 8.
Chidambaram further said all banks have been asked to focus on their top 30 non-performing accounts and take action recovery against the wilful defaulters.
"They are keeping a close watch on top 30 NPA accounts in each bank and action will be taken to recover especially when there is a case of wilful default," he said.
