Mumbai: The finance ministry has called a meeting with chiefs of select public sector banks on 12 June ahead of the Union budget. No formal communication has been sent to the heads of banks but bureaucrats at North Block on Raisina Hill, New Delhi, that houses the ministry of finance, have already informed chief executives of large banks of the meeting even though the Congress-led United Progressive Allied government is yet to formally assume power and name the next finance minister.
Confirming the development, a finance ministry official, who did not want to be identified, told Mint the meeting would probably focus on a possible stimulus package to revive the economy and increase bank lending. At least two bankers said they have been called for this meeting.
Another banker said the government could also ask banks to pare lending rates.
State-run banks account for about 75% of banking assets and play a critical role in propping up a slowing economy.
Former stand-in finance minister Pranab Mukherjee, who took charge after P. Chidambaram was made home minister, had one meeting with public sector bankers ahead of the elections.
Following the meet, public sector banks pared their lending rates 25-50 basis points. One basis point is one-hundredth of a percentage point.
Bankers have been reluctant to cut their loan rates as they are finding it difficult to bring down their deposit rates while the government-run small savings schemes continue to offer relatively higher interest rates—8%.
According to banking sector analysts, the government will be under pressure to trim the small savings rates in the forthcoming budget. Once this is done, banks will be able to cut deposit rates and consequently loan rates, too, as the cost of money will come down.
The prime lending rates, or PLR, of public sector banks— the rate at which they are expected to offer loans to their prime borrowers—are now pegged at 11-11.5%, down from 12-12.5% prevailing in February.
Punjab National Bank has the lowest PLR among all the public sector banks, at 11%.
Since September, the Reserve? Bank of India?(RBI) has cut its policy rate from 9% to 3.25% and cash reserve ratio, or the portion of deposits that commercial banks are to keep with the central bank, from 9% to 5% to ease the credit crunch that has gripped the financial system.
Through various measures RBI has released Rs3.9 trillion worth of liquidity in the system. Besides, the government has announced three fiscal stimulus packages worth 3% of the country’s Rs54 trillion gross domestic product.