New Delhi: The finance ministry on March 11 is said to have pushed the public sector banks to consider lowering their interest rates to boost economic growth. However, some banks want to wait for sometime to see how RBI is going to behave in the monetary policy review on April 7 before taking a decision.
Finance minister Arun Jaitley had a quarterly performance review meeting with the chief executive officers (CEOs) of the public sector banks (PSBs) and financial institutions (FIs). “First with respect to the rate cut, we obviously had a discussion on RBI’s actions. We tried to understand exactly how the banks are thinking and the banks pointed out what they have already done. As far as retail loans are concerned they have already brought down rates a fair bit, we discussed that,” said minister of state for finance Jayant Sinha, after the review meeting.
On when banks may cut their base rates, the minister replied: “Let’s wait and see how that (repo rate cut) plays out... We will see once certain banks starts to take action we will see how it unfolds.” In the last two months RBI had cut repo rate by a total of half a per cent.
“In April, after seeing the RBI monetary policy statement, banks can start considering reduction in the rate... We can reduce anywhere from 10 basis points to 25 basis points. The transmission will definitely take place,” Bank of India chairman VR Iyer said. He said that banks have to keep asset quality in mind before passing on the benefit of the rate cut.
During the meeting, Jaitley said that the government is committed to provide PSU banks financial autonomy both in letter and spirit.
At the same time, the finance minister insisted that the banks should have a strong public grievances redressal mechanism in place, so that their clients do not have to approach the government to redress their grievances.
Jaitley said that the adoption of differentiated strategies and capital augmentation plans through innovative financial instruments would allow the banks to meet their capital requirements.
He said that this would also at the same time facilitate appropriate credit expansion to meet the needs of the productive sectors of the economy so that the momentum of economic growth may be sustained.
The finance ministry has allowed seven public sector banks (PSBs) to tap markets for raising capital needed for expansion and capital adequacy.
