Chidambaram to push PSU banks to cut rates

The interest-rate regime in Indian banks may finally see some movement.

The interest-rate regime in Indian banks may finally see some movement.

Banks may reduce lending rates by the end of next month. Finance minister (FM) P Chidambaram, who is slated to meet chiefs of government-owned banks on July 3, is set to ask them to reduce lending rates to help push economic growth. Sources said that banks could lower rates by about 25 basis points.

Earlier, the FM had noted that though the Reserve Bank of India had reduced policy rates by 1.30% since January 2012, banks have cut lending rates by only 0.30% and have only partially passed on the benefits to end borrowers.

“However, it may not be very easy for banks to reduce rates as the central bank has held on to rates but banks would have to find ways to lower lending rates as it is expected that there could be pressure to reduce rates to pass a positive signal,” a source who did not wish to be identified told HT.

“Since RBI has not reduced rates, it could well be possible that we have to lower deposit rates but that has to be done with caution as that would mean bank’s borrowing, which is through deposits would dry up,” a senior executive of a mid-sized public sector bank added.

Besides this Chidambaram is also set to review bank performances, especially after the Cobrapost expose which revealed several of them not adhering to prudential norms while carrying out operations.