Chidambaram: Banks should cut interest rates
By Joseph Samson
Nov 4, 2008
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Although stage has been set by the RBI for a downward revision in interest rates, banks are waiting for Finance Minister P Chidambaram's gestures before declaring a revision in their lending and deposit rates.

The finance minister is scheduled to meet the chiefs of state-owned banks on November 4th where by he will carry "forward" the view of interest rate cut.

On the comment of the policy measures taken by RBI, he said, "I am happy with the policy package announced by the RBI. When it announced its (peak season) policy on October 24, the RBI had promised swift action in case it was necessary to infuse more liquidity. I am happy that the RBI has responded swiftly."

Banks are still cautious in their moves because they feel that in the near future, RBI may squeeze liquidity from the market in order to continue to defend the rupee. However some banks have reduced the home rates by 50 basis points but at the same time they have also increased the margin requirement to 25% on loans that exceed Rs 30 lakh.

Punjab National Bank on Friday reduced its prime lending rate from 14% to 13.5% and the bank's Chairman and Managing Director (CMD), KC Chakrabarty expects the interest rate to decline by the end of the ongoing fiscal.

M V Nair, CMD of Union Bank of India said, "A 350-bps cut in CRR will reduce our funding cost, also the 150-bps reduction in repo rate coupled with inflation coming down is a clear indication that interest rates are moving downward. We feel that rates will start easing next week itself."

Bankers however feel that it would be feasible to lower deposit rates before cutting the prime lending rates (PLR). "Only when the cost of funds comes down, we would be in a position to pass on the benefit to borrowers," said a senior banker.

Reserve Bank of India's (RBI) move to lower the cash reserve ratio (CRR), repo rate and statutory liquidity ratio (SLR) has send clear signals to the banks to lower their interest rates.

Chidambaram also feel that the banks should now lower their interest rates and therefore he said, "When I meet the Chairmen of the public sector banks on November 4, I will take this matter forward."


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