Chidambaram ‘would like’ banks to cut interest rates


New Delhi : With inflation within manageable levels and the economy sustaining high growth, Finance Minister P. Chidambaram said he favoured banks lowering interest rates to spur growth and arrest slowdown in credit flow.

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“I would like – I can’t wish this – that banks cut lending and deposit rates by 50 basis points so that it stimulates investment and consumption,” he said on the margins of a meeting with chief executives of commercial banks here.

If monetary policy was supportive, interest rates could be lowered, he added.

“Investment and consumption are the drivers of growth, and we have asked banks to ensure that credit is not denied to the two sectors,” the finance minister said, even as credit off-take from consumers appeared to have slowed down this fiscal (2007-08).

“I have asked banks to increase lending to investors and consumers of consumer durables, non-consumer durables as there is sluggishness in these two sectors,” Chidambaram added.

His comments come ahead of the quarterly review of India’s monetary and credit policy for the current fiscal, which Reserve Bank of India (RBI), the central bank, is expected to conduct towards the end of this month.

Chief executives of banks, who participated at Friday’s meeting at the Vigyan Bhavan conference complex here, said they foresaw interest rates in the country remaining stable during the year.

“With inflation at a five-year low, falling interest rates globally, and surplus liquidity with banks, the interest rates can come down by 0.25-0.50 percent this quarter,” said M.B.N. Rao, chairman of the Indian Banks Association.

Rao, who also is the chief executive of Canara Bank, said top executives of his bank would meet shortly to take a view on this matter, while others said they would wait for the central bank to review the monetary policy.

“At least till April the rates look stable,” O.P. Bhatt, chairman of the State Bank of India (SBI), India’s largest commercial bank, said after listening to the finance minister.

The government-owned bank, he said, would finalise details for the proposed $4 billion rights issue by the middle of this month, having secured cabinet approval for the sale in November last year.

The government, which owns around 60 percent shares of the bank, is planning to invest around $2.5 billion by way of sovereign bonds to help it compete not just in the domestic market but also in its overseas operations.