Finance Minister Nirmala Sitharaman told state-owned banks on Tuesday to hold board-level talks and go for further cuts in interest rates on loans in a bid to spur economic activity.
“The FM told bankers that interest rate transmission is not happening as expected, and asked them to take up the matter at board level. The government was sceptical about a slower monetary rate transmission by public sector banks (PSBs) till now,” a person who was present in the meeting said, requesting anonymity.
In the meeting with PSB chief executives, the FM also asked them to expedite the sanctioning of loans under the Emergency Credit Line Guarantee Scheme (ECLGS) to provide additional funding to firms to the tune of Rs 3 trillion. Banks expect to sanction the fully-guaranteed emergency credit line to firms by the end of August. Since February 2019, the RBI has reduced the repo rate (the interest rate at which commercial banks borrow from the central bank) by 185 basis points, which now stands at 4 per cent.
A top PSB executive said the bank had transmitted 120-140 basis points till date, and expressed concern that a further cut in interest rates would impact its finances.
“Banks have to be viable and look at their own profit margins. The depositors’ needs have to be kept in mind too. Bringing down the 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 bank executive said.
Source: Business Standard
