Expectation from Banks - Fin Minister

Finance Minister Pranab Mukherjee wants banks to lower interest rates and pass on benefits to borrowers. In his meeting with state-run bank chiefs, Mukherjee told bankers to ensure credit to industry at lower rates and asked them to match the cut in interest rates undertaken by the Reserve Bank of India.

HIGHLIGHTS

Banks should provide credit to industry at reasonable rates
Banks should address interest rate concerns quickly
Stock markets seem to be quite bullish
Credit at reasonable rates an area of concern
Govt to play only supportive role in PSU banks’ merger
To continue focus on public spending


It was the first meeting of the finance minister with the bankers after the Congress took power at the centre. No wonder then, the message to bankers was firmer. Tired of requesting its own banks to reduce rates to boost economic growth which is likely to slow to 6.5% this year, Mukherjee told the bank chiefs to immediately take corrective steps.

"It is said that the reduction in key rates by RBI is not getting adequately reflected in reduction of BPLR (benchmark prime lending rate) of banks...I would urge the banks to address these concerns expeditiously and in adequate measure," he said. "This will help restore the environment for rapid growth and ensure that the growth process benefits."

The finance minister has reasons to be angry. The Reserve Bank of India has cut the benchmark reverse repo rate  - the rate at which it borrows from banks by 275 points since October 2008. Banks on their part have lowered lending rates by 150-200 basis points only. After the meeting, bankers said they would look at cutting interest rates. 

Mukherjee hoped a cut in interest by the banker will help the economy expand by 7% in the current fiscal year. A cut interest by state-run banks will prompt the private banks to follow suit as they dominate the country's financial sector.
 

"The stock market also seems to be quite bullish," Mukherjee said, referring to the main share index that has jumped more than 90% from its 2009 trough in March helped by foreign portfolio of almost $7 billion in period.

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