Finance ministry urge banks to cut interest rates
By Vaibhav Aggarwal
Feb 4, 2009
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Loans are likely to cheapen in the coming times as banks may cut the interest rates further by around 200 basis points. Chiefs of country's major public sector banks said that may revise the interest rates downwards if the situations remain favourable.

On Monday, February 2nd, public sector chiefs met the finance minister Pranab Mukherjee where the banks were urged to reduce the interest rates to help the economy in revival of demand.

The banks that are expected to decline the interest rates further if the cost of funds and inflation rate come down are State Bank of India (SBI), Punjab National Bank (PNB), UCO Bank and the Oriental Bank of Commerce (OBC).

At the same time finance secretary Arum Ramanathan said that the lending rates are likely to decline because the deposit rates are seen to moderate in the recent times. Meanwhile Mr Mukherjee pointed that the labour growth and growth intensive sectors such as infrastructure and real estate need to be stimulated in order to enable the economy tide over the present global economic crisis.

Following his meeting with the bank chiefs, Mukherjee said: "We must support the development of those sections, which will immediately boost growth and throw up employment opportunities. In view of contracting global demand, we have to focus on development of domestic demand by pri-marily stimulating demand in the rural areas and in highly labour-intensive sectors."

In the latest quarterly review of monetary policy, RBI kept the interest rates unchanged but said that there is a scope for further rate cut by the commercial banks in the backdrop of the measures taken by the RBI.

Taking cue from the RBI, India's largest lender SBI has frozen the home loans rates at 8% for one year and the second largest public lender PNB scaled down its prime lending rate by 50 basis points.

State Bank of India (SBI) chairman O P Bhatt informed that his bank was discussing on the scope of a further rate cut before the meeting only. "There is thinking (on the rate cut)," he had said prior to meeting with the finance minister.

Meanwhile PNB chairman K C Chakrabarty said that the lending rates would decline if the cost of funds came down further.


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