Banks divided on cutting interest rates to boost loan growth

Banks divided on cutting interest rates to boost loan growth
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First Published: Fri, Feb 15 2008. 11 35 PM IST
Updated: Fri, Feb 15 2008. 11 35 PM IST
Mumbai: Indian banks will review their interest rates at upcoming asset/liability committee (ALCO) meetings, but there is no telling whether they will heed the finance minister’s call for softer rates to boost loan growth.
The management committee of Indian Banks’ Association (IBA), the country’s apex association of banks, met on Friday to discuss issues pertaining to the industry, and IBA chief executive officer H.N. Sinor said that some banks could cut interest rates, while some others are reluctant to do so because their rates “are already at the lower level”.
“However, all the banks have said they will review their rates at their upcoming ALCO meetings,” Sinor said.
The IBA meeting was the body’s first after 12 February, when the finance minister met the bankers and asked them to look at cutting rates.
Separately, Sinor said IBA was concerned about stringent norms the banking sector regulator, the Reserve Bank of India (RBI), has suggested for loans related to infrastructure. RBI wants these to be declared non performing assets (NPAs) or bad loans if work on the project does not start within 12 months of the loan being granted.
However, most infrastructure projects in India do get delayed for a variety of reasons including issues related to land acquisition and environmental clearances.
RBI’s proposal could serve as a disincentive to banks to finance infrastructure projects. IBA wanted the bank’s board to take a decision on when and whether loans on such projects become NPAs, Sinor added.
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First Published: Fri, Feb 15 2008. 11 35 PM IST