The Hindu : Business : Bankers hint at interest rate cut

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Saturday, Jan 05, 2008
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Bankers hint at interest rate cut

Special Correspondent

To spur investment and consumption

Committee on financial inclusion submits report
Enhance loans to consumer goods, says FM

NEW DELHI: The prospects of interest rates easing by quarter to half a percentage point appeared bright with bankers hinting at a cut in lending and deposit rates following their meeting with Finance Minister P. Chidambaram on Friday.

The cut in the lending rate could, however, be restricted to loans for consumer goods as the Finance Minister favoured moderating credit to the housing sector as per the Reserve Bank of India’s directions.

“With the inflation rate at its five-year low, falling interest rates globally, and surplus liquidity with the banks, the interest rates can come down by 25 to 50 basis points this quarter,” Indian Banks’ Association Chairman M. B. N. Rao told reporters here.

After the meeting, Mr. Chidambaram said he would like public sector banks to cut deposit and lending rates by half a percentage point to spur investment and consumption so that the economy could be sustained on a high growth path.

“I would like, I can’t wish this, that banks cut lending and deposit rates by 50 basis points so that it stimulates investment and consumption,” the Finance Minister said.

Mr. Chidambaram also wanted banks to enhance lending for consumer goods, while credit to the housing sector could continue to be moderated as per the RBI directive. However, Mr. Chidambaram made it clear that the cut in interest rates had to be decided by each bank, taking into consideration its assets and liabilities.

On his part, Mr. Rao, who heads Canara Bank, said his bank would take a decision in this regard after a meeting of the Asset-Liability Committee shortly. Some banks indicated that they might wait for the RBI’s quarterly review of monetary policy, slated for January 29 before taking any decision on interest rates.

In another significant development, public sector banks, in order to facilitate the process of financial inclusion, agreed to open at least 250 new accounts in each branch every year as recommended by the Committee on Financial Inclusion, headed by the Chairman of the Economic Advisory Council to the Prime Minister, C. Rangarajan.

The final report of the committee was presented to Mr. Chidambaram.

Mr. Chidambaram said the committee also recommended that individuals should be appointed as banking correspondents. At present, only non-government organisations and micro finance institutions could be appointed as banking correspondents as per RBI norms.

“The recommendation is that even individuals should be appointed. People like ex-servicemen, retired bankers can be appointed as banking correspondents,” the Finance Minister said. In the interim report, the committee had recommended setting up of two funds — Financial Inclusion Fund and Financial Inclusion Technology Fund — with a corpus of Rs. 500 crore each Mr. Chidambaram also foresaw stable interest rates and ‘possibly’ moderate interest rates in the medium term, if the the RBI’s monetary policy is supportive.

Credit growth

The Finance Minister expressed satisfaction with credit growth (22.2 per cent) and deposits growth (23.9 per cent) as on December 7. He said banks should not indulge in competitive bidding to raise bulk deposits in the last quarter. “They must keep cost of money low so that cost of lending can be kept low."

In the context of banks’ non-performing assets, Mr. Chidambaram said the gross NPAs had marginally declined to 2.6 per cent in the first six months from 2.66 per cent last fiscal. According to him, banks are also on the target to provide 15 per cent of their total advances to minorities in the next three years, as most of them have already achieved 11-12 per cent lending to these sections.

Coming to restructuring of regional rural banks, the Finance Minister said eight States had agreed to provide funds for this purpose, and by March 31 this year, RRBs would add another 500-600 branches in rural areas.

Earlier, SBI Chairman and Managing Director O. P. Bhatt said interest rates looked stable for the time being, at least till April. Similarly Punjab National Bank’s Chairman and Managing Director K. C. Chakrabarty also expressed the view that the interest rate cut might not happen immediately. “It could happen only after RBI’s credit policy for next fiscal,” he remarked.

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