FM Sitharaman asks banks to consider lowering interest rates: Report

FM Sitharaman asks banks to consider lowering interest rates: Report

Finance Minister Nirmala Sitharaman has asked banks to conduct board-level talks on further interest rate cuts for loans. The move is aimed at pushing economic activity.

Pointing out that interest rate transmission is negligible, Sitharaman told bankers to take up the matter at the board level, a source told the Business Standard. “The government was sceptical about a slower monetary rate transmission by public sector banks (PSBs) till now,” the source added.

The Reserve Bank of India (RBI) has, since February, cut the repo rate by 185 basis points. The repo rate - the rate at which commercial banks borrow from the RBI – now stands at 4 percent.

Banks have transmitted 120-140 bps till date, a PSB executive told the paper adding that any more cuts would hurt finances. “Depositors need to keep in mind that banks have to be viable… bringing down interest rate on loans without reducing the deposit interest rate wouldn’t make sense. By trying to bring down the rate, banks cannot kill the depositors’ franchise,” the source noted.

Further pointing out that the coupon rate for government paper is 6 percent, the source said that banks were offering loans below this rate, adding: “transmission is taking place… but there is a lag in the monetary rate transmission as deposits are for a longer tenure.”

The finance minister, in a meeting with public sector bank (PSB) executives, also told them to ensure adequate support to MSMEs via the Centre’s Rs 3 lakh crore Emergency Credit Line Guarantee Scheme.