FM to ask banks to consider slashing interest rates

KARAIKUDI (TN): Hailing RBI's latest policy package to infuse additional liquidity as a signal for a cut in interest rates, Finance Minister P Chidambaram said on Sunday he will ask the PSU banks to consider lowering lending rates.
    
In an exclusive interview, the Finance Minister said he would take the issue of interest rate cut "forward" during a meeting with the chairpersons of public sector banks in Delhi on November four.
    
"I am happy with the policy package announced by the RBI. When it announced its (peak season) policy on Oct 24, the RBI had promised swift action in case it is necessary to infuse more liquidity.
    
"I am happy that the the RBI has responded swiftly," he said, while commenting on Saturday's policy package announced by the central bank.
    
In a slew of announcements, the RBI had cut the repo rate on Saturday (the rate at which it lends to banks and is a signal to banks to reduce their rates) 50 basis points to 7.5 per cent and the cash reserve ratio by 100 basis points to 5.5 per cent and the statutory liquidity ratio by 100 basis points to infuse an additional Rs 85,000 crore into the system.
    
The central bank had already injected liquidity worth Rs 1,85,000 crore in October in the wake of global financial crisis and depression in the US that had spread fears in India of a recession and brought in volatility in the stock markets.
    
Chidambaram said the RBI's policy was also a signal to the banks that they should now now consider lowering their interest rates.
    
"When I meet the Chairmen of public sector banks on November four I will take this matter forward," Chidambaram said, adding that the RBI's latest package would greatly benefit the industry and trade, especially the small and medium enterprises.
    
Chidambaram said that the opening of an additional window of 150 basis points (BPS) for providing liquidity to Mutual Funds and Non-Banking Finance Companies (NBFCs) will greatly benefit these two segments, which are an important part of the financial system.
    
Asked whether the banks would now now reduce their lending rates, the finance minister said "that is the signal".
    
To a question on the demand for a bail-out package for MFs and NBFCs, whose loans were now now very costly, Chidambaram said the banks can now now borrow from this window at 7.5 per cent.
   
"My view is that banks should not not expect to make very large profits on  lending to MFs and NBFCs. While I do not not wish to indicate any particular rate, 300 basis points above 7.5 per cent should be more than adequate for the banks.
    
The net interest margin (NIM) of bankers above three per cent (300 basis points) should be adequate," he said.
   
RBI's latest measures would bring the repo rate to 7.5 per cent, while CRR and SLR would go down to 5.5 per cent and 24 per cent respectively.
   
A day before Finance Minister's meeting with the PSU bankers on Tuesday, Prime Minister Manmohan Singh, along with Chidambaram, is meeting the captains of Indian industry, including Ratan Tata, Ambanis, Ruias, K M Birla and Nandan Nilekani to explore ways for pushing the economic growth and ensure that the target of 7-8 per cent is met.
    
On its part, the Finance Ministry announced duty changes to bolster and aviation and steel sectors just a day before the RBI package was announced.
    
The bankers had welcomed the RBI's measures announced on Saturday, saying it was a signal for softening interest rates, but refrained from committing an immediate cut in their lending rates.