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.
The meeting?attended by financial services secretary Arun Ramanathan, RBI deputy governor Usha Thorat and minister of state for finance PK Bansal?came at a time when banks are facing a liquidity squeeze, as reflected in the inter-bank lending rate soaring to 21% last Friday, and industrial growth sliding due to lack of funds and consumer demand.
RBI has infused Rs 2.7 lakh crore into the banking system through a reduction in CRR by 350 bps, SLR by 100 bps and the repo rate by 150 bps. Bankers said the cost of funds had declined by as much as 40 bps, giving them leeway to whittle down lending rates. ?It is the right time to pass on the benefits to customers,? said SBI chairman OP Bhatt.
Small Industries Development Bank of India and National Housing Board, which also participated in the meeting, have asked the government for a special line of credit of Rs 10,000 crore each to meet the estimated demand by SMEs and the housing sector over the next six months. ?RBI will examine the demand and a decision will be taken,? Chidambaram said.