Banks may cut rates after FM's push : The Times of India

Lenders Have Reduced Rates By 25Bps Despite RBI's 75Bps Cut Since Jan

Banks are expected to reduce interest rates in the days ahead after finance minister Arun Jaitley prodded them to ease rates to ensure that there was a better transmission of RBI's rate cuts.

“The Union finance minister Arun Jaitley asked the chief executive officers (CEOs) of both the public sector banks (PSBs) and private sector banks that why the banking system, in response to RBI's rate cut of 75 basis points since January 2015, effected a corresponding rate cut of only 25 basis points,“ a statement from the finance ministry said after Jaitley's meeting with bank chiefs.

CMDs of both state run and private banks said full transmission would not be viable till the time the cost of funds and deposits for the banks, as reflected in the repricing of their liability book at the new rate, comes down and liquidity level at the new lower cost, is tested. “Howev er, all banks unanimously expressed that in a period of twoto-three months, greater transmission of lower rates could be seen,“ the finance ministry statement said.

The government and the central bank are keen to ensure that there is better trans mission of the interest rate cuts to support growth. The finance ministry is keen to ensure that the growth engines roar again and rate cuts would help drive investment and consumption. RBI governor Raghuram Rajan had also expressed his disappointment with the slow pace of monetary transmission as banks have been slow to respond to RBI's rate cuts.

“Some part of it (rate cut) has been passed on to customers, while some banks have not passed on. I feel over the next few days ...some of the bankers felt that over the next few weeks, they would be in a position to work out greater cuts,“ Jaitley told reporters after the review meeting.

Jaitley also expressed his concern over the modest domestic credit growth of 7% over the previous year registered by state-run banks and took stock of the sectoral profile of the total domestic credit flow of Rs 49 lakh crore during 2014-15. The agricultural credit grew by 17.3% over the previous year, which came as a silver lining. The FM urged the bankers to achieve the target of 20% growth in educational loans.

Jaitley noted the robust credit growth of 16­18% in the housing sector, and advised the banks to achieve 30% growth in priority sector housing loans, which are required to provide a stimulus to overall growth.