FM asks banks to cut more in loan interest rate

Finance Minister, P Chidambaram has asked the corporate banks to cut the interest rate on consumer loans to cover more number of consumers and to enhance more liquidity. However, he also suggested the banks to reduce the deposit rate so as to make a balance in achieving more growth rate with price stability.

Addressing a group of financial experts in a seminar organised by Chamber of Indian Industries (CII), FM Chidambaram said, “There is scope for deposit rates and interest rates on lending to drop further. I have impressed upon banks that they must extend more loans for consumption and to the retail segment. I am sure they will respond.”

Speaking on the government’s priority the FM said, “Government’s priority is to ensure close to 9% growth and nearly 4% inflation.” While at present the inflation is on the peak of 4.89% within last eight-month period and Chidambaram is hoping to achieve the target by doing some extra efforts.

“The government has privately communicated its views on interest rates to the Reserve Bank of India, which would take a final call on the issue.” On the other hand, RBI has hiked the interest rate nine times since October 2004. To reduce the excess money inflow, RBI has also asked the commercial banks to hike the interest rate on loans, which has now become five times higher than the rate of 2006.

Explaining about reducing the interest rate loans, FM pointed out that Interest rate was the most effective way to contain inflation especially when there were such huge capital inflows. Due to RBI’s strict money perspective, the sale of automobiles and consumer durables have been affected badly while it was on the row when easy loans were available to the consumers. The middle class families had grabbed that opportunity with high enthusiasm and surprisingly the figures of consumer durables selling had reached on the top.

However, RBI has showed no response on the Minister’s comment but several banks have waived off 0.50% interest rate on loans. But it is expected that there might be some reaction comes from RBI within next few weeks.

On responding over grievances against PSU banks, Chidambaram said, “I have got the complaints that PSU banks are charging as high as 22-24 percent interest on consumer loans. But, when I asked for the proof, nobody have produced any evidence.”

On the other hand, over grievances matter, RBI has revised the time limit for redressing the lodged complaints with banking ombudsman and that is within maximum 30-days tenure as against previous 60-days period. Now consumers can forward their complaints to higher authority (Banking Ombudsman Service Cell) for further proceedings.

According to RBI’s direction, each and every bank has to set up a grievance redressal ombudsman service cell to sort out the consumers’ problems. RBI has also set up its own Ombudsman Service Cell that entertain the matters forwarded by unsatisfied consumers, in case, not getting satisfactory response from banks.