Money & Banking

Banks signal further rate cut, Government more capital

Shishir Sinha New Delhi | Updated on January 24, 2018 Published on June 12, 2015

Finance Minister, Arun Jaitley, with S.S. Mundra, Deputy Governor, RBI, during a meeting with the CMDs/CEOs of public sector banks and financial institutions in New Delhi on Friday. Photo: Kamal Narang

Facing allegation of not transmitting rate cut by the Reserve Bank of India, public sector banks have indicated more rate cuts in coming few weeks. At the same time, the Government has indicated more capital for public sector banks.

Since January, the RBI has cut the policy rate, ‘repo rate’ (the rate at which RBI provides short term credit to banks) by 75 basis points. However, public sector banks have transmitted only 30 basis points (100 basis points = 1 per cent) only. This issue was discussed in detail in a review meeting chaired by the Finance Minister Arun Jaitley and attended by all bank chiefs, from both public and private sector.

Later, Jaitley said that banks will work out further rate cut after considering the position of their balance sheet and other factors. He also said that banks feel interest rate on small savings are better than bank deposits and further rate cut will make the latter unattractive. Asked about possibility of revision of rates on small savings Jaitley said, “We will look into that.”

Pitch for higher capital

In the meeting, public sector banks pitched for higher capital infusion by the Government. Asked about Government’s view on this demand, Finance Minister indicated to consider this view. However, the quantum and timing will be discussed by the Cabinet first, he said.

In fact, on Thursday, the RBI had said that Rs 7,940 crore earmarked for recapitalisation of PSU banks in the current fiscal is not adequate and has asked Finance Ministry to increase the quantum of assistance in view of mounting bad loans and to support growth.

“We have been suggesting to the Finance Ministry from time to time that the public sector banks need more capital than what budget has indicated. So, we have been raising this issue at various discussions and forums and it was also formally written by Reserve Bank of India,” RBI Deputy Governor S S Mundra said. He also mentioned that budgeted amount will not be adequate from the both perspective for enabling the bank for clean up of the books which is required and growth when it comes back, to support it, Last fiscal, the government infused Rs 6,990 crore in 9 public sector banks based on their performance.

Published on June 12, 2015
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