Finance Minister P Chidambaram on Friday said public sector banks should try to cut deposit and lending rates by 50 basis points to provide softer loans for investment and consumption. Briefing reporters after his review meeting with PSU bank CEOs, he said a final decision on rates would have to be taken by banks based on their assets and liabilities.
While bankers said they were in favour of the rate cuts, most of them said they would wait for the RBI?s review of monetary policy due on 28 January before taking a decision. Bank non-food credit dipped below 23% last month.
?We should aim for stable interest rates and hope to moderate them in the medium term,? Chidambaram said, adding that the Reserve Bank of India (RBI) monetary policy is also supportive of softening interest rates.
He added that credit must be made available for investment and consumption, which would be key to sustaining a high growth rate. However, the reduction in rates for housing loans could be moderated, as suggested by RBI.
?Interest rates look stable for the time being… at least until April,? OP Bhatt, chairman of the country?s largest lender, State Bank of India, told reporters in New Delhi. According to KC Chakrabarty, CMD, Punjab National Bank, rates are likely to remain stable under the current liquidity position in the system.
MBN Rao, CMD, Canara Bank, said a decision on interest rates would be taken after RBI?s monetary policy review. ?However, the underlying fundamentals indicate that there could be softening of interest rates,? he said, adding that with inflation at its five-year low, interest rates globally are dropping, and there is surplus liquidity with banks.
Reiterating the same sentiments, Vijaya Bank CMD Prakash P Mallya said banks would definitely try to cut interest rates. ?Depending on the asset-liability situation, banks would have to take a decision on interest rates,? he said.
HA Daruwalla, CMD, Central Bank of India said rates are bound to come down.