Govt asks bankers to relook interest rates to spur demand

Govt asks bankers to relook interest rates to spur demand

New Delhi: Concerned over high lending costs impacting key sectors such as automobiles, the government on 5 October asked bankers to have a relook at their interest rates in order to stimulate growth.

Emerging from a meeting called by Finance Minister P. Chidambaram with bankers and representatives of automobiles, auto components and paper industry, Maruti Suzuki India Managing Director Jagdish Khattar told reporters that the minister had taken up the issue of high interest rates.

“He (Chidambaram) asked bankers to have a re-look at interest rates in order to stimulate demand. Costs of auto industry have increased and everybody understands there is a problem and it has to be rectified," Khattar said.

Tata Motors Managing Director Ravi Kant also said the auto industry raised the issue of high interest rates that has resulted in declining sales during the meeting.

Admitting that the rising interest rates was a matter of concern, Punjab National Bank chairman and managing director K.C.Chakrabarty said the finance minister had asked bankers to create positive sentiments.

“We will try to find out ways and means how their problems can be addressed," Chakrabarty said, but declined to commit if PNB would cut rates anytime soon.

SBI chairman O. P. Bhatt, however, said interest rates are likely to remain stable at least till the mid-term review of monetary policy by the RBI on October 30.

BILT chairman Gautam Thapar said the paper industry has also sought a decrease in interest rates. He said though demand in paper industry remained strong this year, negative sentiment would have a spiralling impact and “we might see a reduction in demand next fiscal".

The automobile industry has been going through one of the toughest years with demand slowing down as interest rates kept increasing.

While admitting that banks’ cost of borrowing has also increased, Khattar said the solution to the slowdown in demand of the auto industry was with the bankers.

“We ourselves have been doing whatever we can to keep sales going. In fact, this year our marketing expense will be 50% more than last year," he said.

The bankers were, however, of the opinion that only interest rates were not to sole solution to the problem.

“Interest rate is not the only solution. We can look at various mechanisms, such as delivery in order to create positive sentiments," Chakrabarty said.

ICICI Bank CEO and Managing Director K. V. Kamath said banks had their own problems which needed to be addressed.

“Deposit rates have not come down," he said, adding bankers need to find ways to stimulate overall demand after considering their own problems.