PSBs toe the line, to reduce lending rates next week

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New Delhi, Nov 4: Consumers and companies will finally get some respite from costly credit, with most public sectors banks ready to pare lending rates. At a nearly five-hour review with finance minister P Chidambaram on Tuesday, state-owned bank chiefs committed to cut prime lending rates (PLRs) by up to 75 basis points. PLRs at most nationalised banks are currently at around 13.5%.

State Bank of India, Punjab National Bank, Bank of Baroda, Indian Bank, Central Bank of India, Uco Bank and Bank of Maharashtra confirmed they would move to cut rates, some as early as next week. Chidambaram has asked banks to submit a credit delivery report every fortnight to ensure that easy liquidity and lower rates actually translate into improved lending.

“Finance secretary Arun Ramanathan and a deputy governor of the Reserve Bank of India would meet the private sector banks on Wednesday,” Chidambaram said after the meeting. Indications are that private sector banks would match any rate cuts by their public sector peers. Banks are also expected to reduce deposit rates, currently at their highest levels in over a decade: fixed deposits yield 10.5-11%.

“I have impressed upon banks that creation of liquidity is just one step. The credit price and its delivery should be improved. I have asked banks to submit a fortnightly report, which will ensure that all sectors get adequate credit,” Chidambaram said. “I have impressed upon banks to lend for housing and construction activities, which are growth sectors,” he added.

Banks urged the government to ease some guidelines on non-performing assets to help them free up capital. Chidambaram indicated that RBI would relax norms on NPA provisioning for infrastructure loans, where projects are delayed due to court cases. This would prevent banks from treating assets as NPAs when a borrower could start a project, as the matter is sub-judice.

“You can expect RBI to issue the guidelines within a week,” Chidambaram said. Any loan instalment that remains unpaid for up to 90 days is treated as an NPA. Banks have also demanded that the RBI consider excluding loans whose rescheduling isn’t complete within the 90-day window from NPA provisioning.