Terming "as a right signal" the RBI's latest policy package to inject more liquidity in the system, Finance Minister P Chidambaram on Sunday said he will ask the PSU banks to consider lowering lending rates.
In an exclusive interview to PTI, the Minister said he would take the issue of interest rate cut "forward" during a meeting with chairpersons of public sector banks in Delhi on November four.
"I am happy with the policy package announced by the RBI.
When it announced its (peak season) policy on Oct 24, the RBI had promised swift action in case it is necessary to infuse more liquidity.
"I am happy that the RBI has responded swiftly," he said in his reaction to yesterday's policy package announced by the central bank.
In a slew of announcements, the RBI had yesterday cut the repo rate (the rate at which it lends to banks and is a signal to banks to reduce their rates) 50 basis to 7.5 per cent and the cash reserve ratio by 100 basis points to 5.5 per cent and the statutory liquidity ratio by 100 basis points to infuse an additional Rs 85,000 crore into the system.
The central bank had already injected in October additional liquidity of Rs.1,85,000 crore in the wake of global financial crisis and depression in the US that had spread fears in India of a recession and brought in volatility in the stock markets.
Chidambaram said the RBI's policy was also a signal to the banks that they should now now consider lowering their interest rates. "When I meet the Chairmen of public sector banks on
November four I will take this matter forward," Chidambaram said, adding that the RBI's latest package would greatly benefit the industry and trade, especially the small and medium enterprises.
The bankers had welcomed RBI's measures announced yesterday, saying it was a signal for softening interest rates, but refrained from committing an immediate cut in their lending rates.
Industry chamber CII President K V Kamath, who is also head of the country's largest private sector lender ICICI Bank, had said that RBI's steps were "welcome and concrete" but suggested that more liquidity was needed in the system for ensuring lowering of commercial interest rates by 3-4 per cent.
Chidambaram said that the opening of an additional window of 150 basis points (BPS) for providing liquidity to Mutual Funds and Non-Banking Finance Companies (NBFCs) will greatly benefit these two segments, which are an important part of the financial system.
Asked whether the banks would now reduce their lending rates, the finance minister said "that is the signal".
To a question on the demand for a bailout package for MFs and NBFCs, whose loans were now now very costly, Chidambaram said the banks could now borrow from this window at 7.5 per cent.
"My view is that banks should not not expect to make very large profits on lending to MFs and NBFCs. While I do not not wish to indicate any particular rate, 300 basis points above 7.5 per cent should be more than adequate for the banks.
The net interest margin (NIM) of bankers above three per cent (300 basis points) should be adequate," he said.
K C Chakrabarty, Chairman and Managing Director of Punjab National Bank, which had announced a 0.5 per cent cut in its peak lending rates a day before RBI's latest measures, said, "We see single digit deposit rates soon... (we have) already announced to cut peak deposit rate to 10 per cent beginning next month."
RBI's latest measures would bring the repo rate to 7.5 per cent, while CRR and SLR would go down to 5.5 per cent and 24 per cent respectively.
Commenting on RBI's move, ICICI Bank Joint Managing Director Chanda Kochhar said, "It will release much needed liquidity into the system and signals reduction in rates," but added it was too early to say when this would get translated into lowering of interest rates.
Bank of India CMD T S Narayanasami said that it would look at cutting deposit and lending rates, but it might take a month for deposit rates to come down.
Private sector lender HDFC Bank, however, said that it would not reduce its PLR unless funding costs come down.
A day before Finance Minister's meeting with the PSU bankers on Tuesday, Prime Minister Manmohan Singh, along with Chidambaram, is meeting the captains of Indian industry, including Ratan Tata, Ambanis, Ruias, K M Birla and Nandan Nilekani to explore ways for pushing the economic growth and ensure that the target of 7-8 per cent is met.
On its part, the Finance Ministry announced duty changes to bolster and aviation and steel sectors just a day before the RBI package was announced.