The External Affairs Minister Pranab Mukherjee, who is holding the Finance Ministry portfolio in the absence of Prime Minister Manmohan Singh, is schedule to meet top officials of the public sector banks on Monday.
The minister would evaluate third quarter performance, loan disbursal and the impact of the stimulus packages announced by the government. Moreover, Pranab is also likely to mount political pressure on the banks for more cut in the interest rates as despite several rounds of reduction announced by the Reserve Bank of India, several banks have not cut back the long term as well as short term rates that is deteriorating the economic status of the country.
Due to higher interest rates, the reality, automobile and retail loan sectors are the worst hit in the absence of adequate liquidity thereby shortening the demand graph, market experts believe.
So, it is likely that Mukherjee can ask banks to cut interest rate in home loans up to Rs.20lakh segment, and also to raise the ratio of credit as RBI has already open the refinance window for non-banking institutes and commercial banks to disburse the long-term loans. For instance, RBI has announced to refill the National Housing Bank (NHB) by Rs.5,000-crore and Small Industries Development Bank of India (SIDBI) by Rs.7,000-crore.
To stimulate the short-term loans, RBI had already cut the repo rate to 5.5 per cent while to demoralise banks not to park excess liquidity with the Central bank, the Bank has also cut the reverse repo rate to 4%.
The mandatory cash reserve ratio (CRR) – the slice of cash which banks have to park with the master bank – had also been trimmed to 5%.
For disbursing the long-term loans, RBI had also set the Benchmark Prime Lending Rate (BPLR) – the rate at which banks lend credit to its preferred customers – to 12.75 to 13.25 percent.
Bank’s difficulties
Despite several round of cut in repo, reverse repo, CRR and BPLR, the banks are committed to give higher rate of interest on ongoing fixed deposits (FDs) and they can follow the current revised rate in only fresh FDs, market experts assume.
Moreover, banks have to lend loans on below rate to BPLR to some reserved category customers like farmers, students, exporters and many more listed by the government that hit the profit of the banks severely.
Banks are also facing stiff competition in the slowdown market from government’s small saving schemes (SSS) that is tax free while the interest rate on banks is taxable. The government is also unlikely to reduce the interest rate on SSS. At present, the rate on SSS is 8% while bank’s rate of interest on FDs varies from 9 to 12 percent.
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