By IANS,
New Delhi : Households and industry alike should have a cause for cheer as cost of credit on home loans or corporate borrowings is set to soften, after the chiefs of commercial banks agreed to cut interest rates during a meeting with Finance Minister P. Chidambaram here Tuesday.
The chief executives of State Bank of India, United Commercial Bank, Punjab National Bank and the Union Bank of India, among others, said they will cut their prime lending rates, which determine the interest rates on corporate or housing loans, by 25-75 basis points.
“It has to be at least 25 basis points but it could be 50,” O.P. Bhatt, chairman of the State Bank of India told reporters, referring to the interest rate cut proposed. “After today’s meeting, our special committee meets later to review interest rates,” he said.
“We have decided to cut the prime lending rate by half a percent,” said S.K. Goel, chairman of United Commercial Bank, another state-owned institution, adding that his bank’s committee that will formally approve the rate cuts meets Nov 10.
Briefing reporters after the meeting, Chidambaram said enough liquidity had been infused into India’s financial system, adding that commercial banks would now enhance their credit delivery at the right price.
“We will need to see some encouraging decisions by the commercial banks,” he said.
“There are three stages for credit – liquidity, price, actual credit delivery. Let us see how the banking system responds to these three stages,” he said after the four-hour meeting.
“Public sector banks stand ready to enhance the credit limit for all standard account holders of micro, small and medium enterprises,” he said, adding that liquidity being a snapshot, the position was being monitored 24/7.
According to the finance minister, Tuesday’s meeting discussed and reviewed the outcome of decisions taken on a host of issues in the last meeting Aug 12, including liquidity, farm credit and capital adequacy of banks.
He said all public sector banks had been asked to give their capital requirement for the fiscal year ending March 31, 2009 and the subsequent three years so that the government could respond with keeping their balance sheets healthy.
He also disclosed that the requests for additional lines of credit made by the Small Industries Development Bank of India (Sidbi) and the National Bank for Agriculture and Rural Development (Nabard) will be examined.
The finance minister also said that the National Housing Bank (NHB) had also sought additional line of credit worth Rs.10,000 crore (Rs.100 billion or around $2.2 billion) towards financing the realty sector, which, too, was being suitably examined.
“As regards, small and medium enterprises and the housing sector, adequate finance will be provided.”
The finance ministry and the Reserve Bank of India (RBI) would now hold a meeting here Wednesday with the chiefs of private banks to round-up the quarterly review, following the mid-year appraisal of central bank’s monetary policy late last month.
Chidambaram’s meeting with the chiefs of state-run banks followed a brainstorming session chaired by Prime Minister Manmohan Singh with presidents of all apex chambers and leading industrialists Monday.
The prime minister had assured industry that all required steps were being taken to ensure that India’s growth momentum was maintained. He had, however, asked industry to refrain from knee-jerk actions like large-scale lay-offs.
According to the finance minister, the banking system had also been asked during the last review meeting to return the gold pledged by farmers for loans. This, he said, had been returned where the debt had been written off.