Slash operational costs to reduce interest rates: FM to banks

Stating that low interest rates spur economic growth, finance minister P Chidambaram on Saturday asked banks to improve their operational efficiency to bring down the rates, and pass on the benefit to borrowers.

Stating that low interest rates spur economic growth, finance minister P Chidambaram on Saturday asked banks to improve their operational efficiency to bring down the rates, and pass on the benefit to borrowers.

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"Banks should try to rationalise interest rates offered to customers...to a large extent, lower interest rates depend on policy rates. Banks can attempt to improve their operating efficiency, reducing costs, and pass on the benefit to borrowers through lower interest rates," a State Bank of India statement quoted Chidambaram as saying.

"Lower interest rates would act as a spur to economic growth and alter customer sentiment," he added.

Chidambaram spoke to the SBI brass at the headquarters of the country's largest lender during his visit here.

The Reserve Bank of India recently lowered its key lending rate by 0.25% and complimented it with a similar reduction in the cash reserve ratio to infuse liquidity.

Some banks have passed the benefit to the borrowers by a similar extent, but many others have desisted, citing high cost of funds, which is attributed to the slower growth in deposits.

Official data released yesterday said growth in 2012-13 is estimated to fall to 5%.

During the interaction, the SBI management discussed the ground situation vis-a-vis revival in demand in infrastructure, manufacturing and services sector, stressed sectors and some sector-specific performance like engineering goods, consumer goods and residential housing space, the SBI statement said.

Chidambaram addressed the board of directors of the bank during his two-hour-long meeting.

He also inaugurated 101 branches of the bank, across 14 states, in a virtual way, the statement said, adding that the bank's network now has 14,598 branches.

Earlier in the day, he inaugurated state-run Punjab National Bank's building premises at Bandra Kurla Complex.

PNB chairman KR Kamath said the building will house its integrated treasury operations and also serve as a circle office for Mumbai.