Banks will lower lending rates, EMIs to drop further

Finance minister meets main bankers and discussed with them the interest payment

GN Bureau | June 12, 2015


#banks   #lending   #arun jaitley   #consumers  


Finance Minister Arun Jaitley seems have put pressure and extracted a promise from commercial banks on further reduction of interest rates, thus making home, auto and other loans cheaper. The EMIs will come down.

Jaitley held meeting with top bankers on Friday on the interest rates after the reserve bank of India had cut repo rate thrice this year.

He also discussed a host of issues like transmission of rate cuts, problems of bad loans and health of the economy. The minister told reporters that financial services secretary would look into projects held up for want of funds.

The government, Jaitley said, would also consider favourably the demand of PSU banks for more capital infusion, over and above what was earmarked in the budget for 2015-16.

As regards the transmission of rate cuts by the RBI, the Minister said the banks gave detailed presentation on how each one of them reduced their lending rates.

"Some part of it (rate cut) have 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," the Minister said.

Some banks have expressed their inability to pass on the rate cuts on account on problems with their respective balance sheets and higher rates on small savings schemes.

Many banks, including the market leader SBI, had cut interest rates after RBI reduced repo (lending) rate by 0.25 per cent in its second bi-monthly monetary policy on June 2. RBI since January had reduced the repo rate by a total of 0.75 per cent in three tranches.

The final decision on demands of PSU banks for greater capital infusion will be taken by the cabinet.

Government has earmarked Rs 7,900 crore in the budget 2015-16 towards capital infusion in PSU banks. The RBI had earlier said that the amount is inadequate and needed to be enhanced. On projects stalled for want of funds, Jaitley said the Financial Services Secretary will prepare a list of such projects and try to resolve the issue.

"Both the Secretary and if necessary at my level, we will be calling for a meeting of the representatives of the state governments, those projects and concerned departments, over the next few days and try to resolve the issues," he said.

As regards the non-performing assets (NPAs), Jaitley said the situation has improved in the January-March quarter, but it is important to watch the developments over the next 2-3 quarters before reaching any conclusion.
 
"In quarter ending March 2015, NPAs had come down from 5.64 per cent to 5.2 per cent. One quarter does not indicate a pattern. So I would wait for some more time before realising what the pattern is. Banks are themselves of the assessment that it would take them 2-3 quarters to reach a somewhat more greater comfort level," he said.

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