Concerned over public sector banks' reluctance to pass on the benefits of RBI's rate cuts to their customers, Finance Minister P Chidambaram on Wednesday asked them to a fresh look at their lending rates so that some benefits can be passed on to the common man, though the call by the minister evoked mixed reactions from the banking community with State Bank of India (SBI) clearly stating that there was limited scope to do so.
While the RBI has reduced its key short-term lending rate (or repo rate) by 1.25 percentage points since January 2012, public sector banks have not exactly followed suit and have cut their rate only by 0.30 per cent. Chidambaram held a marathon three-long meeting with the bankers to impress upon them the need to revise their lending rates, and later informed media persons that banks have assured them to do so in the next few weeks, however the bankers on their part did not quite appear to have been enthused by the directive.
The largest lender SBI said that later that there was little scope to reduce base rate as they are the lowest in the market.Several bankers also said that they are constrained to pass on the rate cut benefit because of higher provisioning norms as well as due to increase in their own borrowing cost by up to 0.5 per cent.At the same time though, the Bank of India later in the day announced a cut of 0.25 per cent in base rate to 10 per cent.
The bank has decided to reduce its base rate from the existing 10.25 per cent to 10 per cent, it said in a statement, adding that the new rate would be effective from July 8, 2013. “We have asked them (PSU banks) to take a look at their base rates. I have impressed upon the bankers, as the RBI has cut the policy rates by 125 basis points, ...Some part of this must indeed be passed on to borrowers,” Chidambaram told reporters after the meeting with bankers.
He said all the banks have assured that they would review their base rate this month and they will take appropriate decision on cutting the base rate.“In my view, reduction in base rate would be a powerful booster to the economy, powerful stimulus to credit growth,” the Finance Minister said.Chidambaram noted that while base rate of SBI was 9.7 per cent, the average for other PSU banks is 10.2 or 10.25 per cent.
Chidambaram further said all banks have been asked to focus on their top 30 non-performing accounts and take action recovery against wilful defaulters. “They are keeping a close watch on top 30 non performing assets (NPA) accounts in each bank and action will be taken to recover especially when there is a case of wilful default,” he said.