India’s state-run banks agree to cut interest ratesFebruary 2nd, 2009 - 6:44 pm ICT by IANS
New Delhi, Feb 2 (IANS) Chief executives of India’s state-run commercial banks Monday assured the government they would lower interest rates and step up their credit flows in a bid to help the corporate sector tide over the economic slowdown.In a review meeting here with External Affairs Minister Pranab Mukherjee, who is holding additional charge of the finance portfolio, bankers said they expected their lending rates to come down further by at least 50 basis points soon.
“The deposit rates have moderated, so there is general expectation that interest rates will also come down,” Finance Secretary Arun Ramanathan said after the meeting, the first since Mukherjee took charge of the finance ministry last month from the prime minister, who was hospitalised for heart surgery.
The external affairs minister, who was the finance minister between January 1982 and December 1984, said the government was keen on pushing domestic demand so as to help the Indian corporate sector address the impact of global meltdown.
His reference was to the two sets of stimulus packages announced since December and the measures taken by the central bank since September to ease liquidity in the system and reduce the cost of credit for commercial banks.
Finance ministry officials told the chief executives that they still found the interest rates charged by them on the higher side, especially for the construction and real estate sectors, despite the rate cuts in recent weeks.
T.S. Narayansami, the chairman of the Indian Banks’ Association, said the meeting also had on the agenda other items like the enhancing the flow of credit to productive sectors.
Monday’s meeting came soon after the quarterly review of the monetary policy by the Reserve Bank of India (RBI), in which it decided to keep all key interest rates as also the reserve money ratios unchanged.
But the central bank has been intervening at regular intervals since September last year, resulting in the injection of additional liquidity worth as much as Rs.3.88 trillion (Rs.388,000 crore/$77.5 billion), officials said.
Cabinet Secretary K.M. Chandrasekhar, along with state chief secretaries and top officials of key economic ministries, Saturday took stock of the progress being made in executing various measures announced over the past two months.
He made three specific requests: focus on large-scale housing projects, meet with banks regularly to ensure flow of credit to industry, and ask state-run units not to withhold payments to small and medium enterprises.
India’s industrial production - that has been powering the country’s growth - registered a fall in October for the first time in 15 years on account of the slowdown, and managed to rise by just 2.4 percent the next month.
Similarly, the country’s merchandise exports also shrank three successive months since October, forcing the government to concede that the target of $200 billion for the fiscal would remain unmet and would settle at around $170 billion.