The Hindu : Business : FM tells bankers to revisit interest rates

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Saturday, Oct 06, 2007
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FM tells bankers to revisit interest rates

Special Correspondent

Solution to stimulate demand in auto, paper industries

— PHOTO: KAMAL NARANG

SHARING CONCERN: Pawan Munjal (left), Managing Director, Hero Honda, Jagdish Khattar (centre), Managing Director and CEO, Maruti Suzuki, and Ravi Kant, Managing Director, Tata Motors, waiting to meet the Finance Minister in New Delhi on Friday.

NEW DELHI: The Central Government on Friday asked public sector banks to revisit interest rates as the current high cost of lending was adversely affecting the growth of key manufacturing sectors such as automobiles owing to a slack in demand.

Speaking to newspersons here after a bankers’ interface with representatives of automobiles, auto components and the paper industry at the behest of Finance Minister P. Chidambaram, Maruti Suzuki India Managing Director Jagdish Khattar said: “He [Chidambaram] asked bankers to have a re-look at interest rates in order to stimulate demand. Costs of the auto industry have increased and everybody understands there is a problem and it has to be rectified.”

With the steady hike in interest rates as a measure to check the inflation rate, the auto sector witnessed a distinct slowdown in demand for new vehicles and the current year has been one of the toughest for the industry in recent times. According to Tata Motors Managing Director Ravi Kant, the auto industry did raise the issue of high interest rates at the meeting as it had resulted in a slump in sales.

Conceding that the banks’ cost of borrowing had also gone up, Mr. Khattar still maintained that it was for the bankers to find a solution to the demand slowdown in the auto sector. “We ourselves have been doing whatever we can to keep sales going. In fact, this year our marketing expense will be 50 per cent more than last year,” he said.

The paper industry also sought lower interest rates although the demand for its products remained strong during the current year. According to BILT Chairman Gautam Thapar, the negative sentiment of high costs would have a spiralling impact and “we might see a reduction in demand next fiscal.”

As for the bankers, Punjab National Bank Chairman and Managing Director K. C. Chakrabarty agreed that the hike in interest rates was a matter of concern and that the Finance Minister had directed the bank chiefs to create positive sentiments. However, the bank chiefs felt that tinkering with interest rates was not the only solution.

“We will try to find out ways and means how their problems can be addressed… Interest rate is not the only solution. We can look at various mechanisms such as delivery in order to create positive sentiments,” Mr. Chakrabarty said. However, as to when the bank would cut the rates, the PNB chief declined to commit.

Setting a timeframe was SBI Chairman O.P. Bhatt who maintained that the interest rates were likely to remain stable at least till the mid-term review of monetary policy by the Reserve Bank of India (RBI) on October 30.

Clearly, the banks would be awaiting the Central bank’s indication on this count.

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