Chidambaram urges PSU banks to cut lending rates

New Delhi: With banks shying away from passing on RBI rate cut benefits, Finance Minister P Chidambaram Wednesday asked them to review their minimum lending rates or base rates so as to bring the cost of borrowing down for consumers.

The Reserve Bank has reduced its key short-term lending rate (repo) by 1.25 percentage points since January 2012, but banks have passed on only 0.30 percent to consumers.

"We have asked them (PSU banks) to take a look at their base rates. I have impressed upon the bankers, as the RBI has cut the policy rates by 125 basis points, ...Some part of this must indeed be passed on to borrowers," he told reporters after his meeting with heads of PSU banks.

He said all the banks have assured that they would review their base rate this month and they will take appropriate decision on cutting the base rate.

"In my view, reduction in base rate would be a powerful booster to the economy, powerful stimulus to credit growth," the Finance Minister said.

Chidambaram's plea to bankers, however, did not cut much ice with the largest lender SBI saying there was little scope to reduce base rate as they are the lowest in the market.

Bankers said they are constrained to pass on the rate cut benefit because of higher provisioning norms as well as due to increase in their own borrowing cost by up to 0.5 percent.

Chidambaram said while base rate of SBI was 9.7 percent, the average for other PSU banks is 10.2 or 10.25 percent.

Meanwhile, Bank of India has announced to cut its base rate from 10.25 percent to 10 percent from July 8.

Chidambaram further said all banks have been asked to focus on their top 30 non-performing accounts and take action recovery against the wilful defaulters.

"They are keeping a close watch on top 30 NPA accounts in each bank and action will be taken to recover especially when there is a case of wilful default," he said.
Chidambaram said banks have informed that top 30 NPA as well as performing accounts are reviewed monthly.

"The top NPA accounts are reviewed every month and actions are taken," he said, adding that focus on top accounts would help banks improve balance sheet sharply.

On asset quality of banks, he said it has improved in the March quarter over the previous three months.

"There has been an improvement in the gross NPA ratio. There has been an improvement in every sector in terms of gross NPA. Therefore as of March 2013, compared to December 2012, the asset quality has, in fact, improved. But you cannot look at it as one quarter, we will have to see at the end of the year," the Finance Minister said.

He also said while the deposit growth has been modest for the fiscal ending March 2013, the credit growth has been slow.

At the end of March 31, 2013, PSU banks' deposits grew by 14.91 percent, slightly higher than the 14.4 percent recorded in the previous year. Credit growth at the end of March 31, 2013 was 15.62, down from 17.76 percent in 2011-12.

"There is good credit demand from a few sectors -- agriculture, small and medium enterprises and retail loans," he said.

In housing, he said, there are signs of credit growth, especially in commercial real estate for residential purposes. On the infrastructure side, there are some signs of higher credit demand in road sector, non-conventional energy sector.

He also said all PSU banks are compliant Basel capital requirement norms. He said that except for four public sector banks -- IDBI Bank, Indian Overseas Bank, Bank of Maharashtra and Dena Bank -- all other have Capital Adequacy Ratio (CAR) of 8 percent and more.

Chidambaram also informed that public sector banks would be opening 8,000 new branches this year and hiring 50,000 employees.

PTI