Chidambaram wants to know why PSBs have not passed on rate cuts

FM to discuss issue with public sector banks by month end.

Finance minister P Chidambaram said on Thursday that he will hold a meeting with public sector banks (PSBs) by month-end, asking why they were not passing on to borrowers the benefit of the rate cuts by the Reserve Bank of India (RBI).

Pointing out that the RBI had reduced the repo rate ? the rate at which the central bank lends to banks ? by 130 basis points (bps) since early 2012, the minister said that banks, for their part, had cut rates only by 30 bps during the period.

?The point (of banks not passing on the benefits of rate cuts) is being made before the chief economic advisor (Raghuram Rajan). I have called the chairpersons of PSBs towards the end of this month and will have a chat on this issue. We will talk to the banks. I think they are cautious. Caution is good, but you can?t be over-cautious,? Chidambaram told reporters.

Referring to the fall in inflation at the wholesale and retail levels, Chidambaram said he had urged banks earlier also to pass on the benefits of the relaxed monetary policy to retail borrowers by bringing down lending rates.

Bankers said they were facing a liquidity crunch and finding it difficult to pass on the benefits as they are now trying to attract more deposits by keeping the deposit rates high.

FE had reported last month that though many banks, including SBI and Bank of India, had experimented with lower deposit rates, they had to restore the high rates following a deposit exodus.

Also, the high level of NPAs is preventing banks from reducing rates as they are looking at margins as a means to protect themselves from rising NPAs.

The government?s efforts to expedite clearances for stuck infrastructure projects worth R7 lakh crore are expected to revive the economy and, in the process, bring down NPAs. Banking sources said that lenders are unlikely to lower rates if the RBI doesn?t cut rates in its monetary policy review on June 17. They said a cut in CRR, infusing more liquidity into the system, can also lead to a reduction in lending rates.

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First published on: 14-06-2013 at 01:08 IST