The government will undertake a study to measure the efficiency of public sector banks against international standards. This is to keep pressure on these banks from passing on increasing operating costs in the form of higher lending rates.
Finance minister P. Chidambaram told bankers during a review meeting that the government will be focusing on the net interest margin—the excess of interest income over interest expenses and expressed as a percentage of total bank assets—to measure the efficiencies of public sector banks.
It is a measure of efficiency with which banks allocate money—lower the NIM, the more efficient the system.
Disclosing this move, the head of a public sector bank, who did not wish to be quoted, said the finance minister argued that an NIM of 3-4% was too high when compared to the 2% averaged by foreign banks.
Meanwhile, banks are likely to leave interest rates on home loans at the existing level following the government’s request to hold the current interest rate line, Chidambaram told the media after the meeting.
The finance minstry has also asked banks to moderate credit flow to real estate sector, capital market, non-banking finance companies and credit card business after the Reserve Bank of India raised the cost of lending to these sectors in the governor’s quarterly policy statement on 31 January.
Chidambaram also urged public sector banks to bring about a convergence of interest rates for educational loans at about 10.5-11%.