Pranab asks bankers to sever the interest rates further
By Vaibhav Aggarwal
Jun 12, 2009
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In the pre-budget meeting held between the Union Finance Minister, Pranab Mukherjee and top executives of public sector banks (PSBs) on 10th July 09, the minister asked the bankers to pare the lending rates further.

Expressing his concern over the industry needs and stating the role of banks in the economic system, the minister said, "As a financial intermediary, the banks have to stand by to provide credit at reasonable rates. This is an area of concern in many quarters both within the government and outside."    

He also said that the rate cuts by the regulator are not effectively reflected in the rate cuts by the banks (Mar 20, 2009). However, the minister did not word the level by which the rates would be reduced. "All possibilities will be explored. I can't quantify it [the cut in lending rates]," said the minister.

The minister reasoned that cost-effective credit is important to spur the economic growth. "I would urge the banks to address these concerns expeditiously and in adequate measure. This will help restore the environment for rapid growth and ensure that the growth process benefits all our people," the minister added.

It is expected that lending rates on the retail loans, inducing housing loans would be reduced in coming weeks. The rates on the corporate borrowings are also expected to slash.

Concurring with the minister's views on the matter, many public banks have hinted reduction in the lending rates (Jun 9, 2009). O.P. Bhatt, chairperson, State Bank of India, said, "Our bank will decide on lowering the interest rates by this month-end." Other PSBs including the Canara Bank and Corporation Bank have also indicated similar moves.

Currently, the BPLR of PSBs is pegged between 12.75 to 13.25 percent. The industry demands reduction of the lending rates to a single digit figure to enable rise in the consumer demand, increase the production and the consequent economic growth. The Prime Minister Manmohan Singh recently affirmed that India can achieve a GDP of 8 to 9 percent a year, amidst of the global economic meltdown.

Reaffirming the objectives of the government, Mr. Mukherjee said, "The government is committed to the overall development of the economy. For the economy to prosper, the business has to flourish. Our role is to provide an enabling environment for the business to flourish by way of various pro-growth policy announcements."

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