Newly appointed Home Minister P Chidambaram has said on Friday that banks will soon filter down the profits to the existing borrowers, gaining through Reserve Bank of India’s move which has injected enough liquidity in the system.
Chidambaram, who was participating in a debate in the Lok Sabha on behalf of Prime Minister Manmohan Singh, was responding to the CPM members Basudev Acharya and P Karunakaran who raised questions that why banks are not passing the profit to existing borrowers despite RBI’s effort in bringing down prime lending rates.
‘We are talking to bankers and I am sure that banks will sincerely attempt to reset the floating rates for the existing customers too,’ he said.
With a view to run the economic system smoothly, the apex bank has pumped enough liquidity and reduced the key lending rate by 250 basis points in the last few months, and expected that banks would slash the interest rates on home loans as the prime lending rate (PLR) has been reduced.
Till date only public sector banks have announced to cut interest rate on new home loans while private sector banks have remained unmoved.
Recently, the Indian Bankers Association (IBA) has fixed 8.50% interest rate on up to Rs. 5 lakh of loan and 9.25% on Rs.5 to 20 lakh of credit but this facility would be given to new borrowers only, while government wants to implement this on existing customers too who are paying over 12-16 percent on their home debt.
RBI in the third and fourth quarter has decreased the cash reserve ratio (CRR), prime lending rate (PLR) and the statutory liquidity ratio (SLR) to heal the Indian economic system and to ensure enough liquidity in the system, but according to Chidambaram, ‘Liquidity should be transferred into credit.’
‘We have addressed the issue through CRR, SLR cuts and infused adequate liquidity in the system but liquidity is not enough. This is a two-stage exercise, the liquidity must be transferred to actual credit, which should be available at a reasonable price,’ he said.
He also emphasised that banks should not deny lending the credits to farmers and labourers, as their contribution in rapid growth is crucial.
Despite global meltdown and deepening recession, Chidambaram reiterated that India would grow over 7% of growth rate and would emerge as the second fastest growing economy in the world.
He also ensured that government is mulling to grant a bailout package to automobile, textile, gems and jewellery, and steel sectors that have faced the worst financial crisis.
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