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FM asks banks to cut rates for growth

FM asks banks to cut rates for growth
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First Published: Wed, Jun 10 2009. 04 10 PM IST
Updated: Wed, Jun 10 2009. 04 10 PM IST
New Delhi: India’s largest lender, State Bank of India, said on Wednesday it would decide on cutting rates by the end of June after the finance minister urged banks to provide loans at reasonable rates to spur growth.
Union finance minister Pranab Mukherjee, who met chiefs of state-run commercial banks that dominate Indian banking, said sharp rate cuts by the Reserve Bank of India (RBI) were yet to reflect in lower borrowing costs for consumers.
“I would urge the banks to address these concerns expeditiously and in adequate measure,” he said.
“This will help restore the environment for rapid growth and ensure that the growth process benefits.”
Mukherjee, whose Congress-led coalition came back to power last month with a stronger electoral mandate, said the government was looking at the economy with a lot of hope and the 6.7% growth in 2008-09 was a pointer towards this direction.
Following a higher-than-expected growth in the March quarter, many banks revised upward India’s growth forecast for 2009-10, which now ranges between 5.8-7.2%.
“The stock market also seems to be quite bullish,” Mukherjee said, referring to the main share index that has jumped more than 90% from its 2009 trough in March helped by foreign portfolio of almost $7 billion in period.
OP Bhatt, chairman of State Bank of India, said the bank expected credit to expand a fifth in the first half of the current fiscal year that began in April.
The bank will also decide on lower interest rates by the end of June, he said.
SBI and its associates control nearly a quarter of Indian banks’ deposits and loans.
Interest Rates
Banks in India usually react to signals from the finance ministry but a slowing economy has made them wary of lending actively due to concerns about a rise in consumer delinquencies.
Mukherjee said prime lending rates of banks had come downto between 12.00-12.25% from 13.75-14.25% six months ago, far lower than the drop in the central bank’s policy rates.
The central bank has aggressively cut its policy rates since last October to ease credit conditions following Lehman Brothers’ collapse in the United States that triggered a global financial crisis.
The RBI’s reverse repo rate, at which it absorbs excess cash from the banking system, has been slashed by 275 basis points since then to 3.25%.
Mukherjee said India faced many challenges on the economic front, but stimulus measures taken by the government and central bank would help growth.
“Our role is to provide an enabling environment for the business to flourish by way of various pro-growth policy announcements,” he said.
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First Published: Wed, Jun 10 2009. 04 10 PM IST
More Topics: Pranab Mukherjee | FM | Rate cuts | RBI | Inflation |