Banks will further trim interest rates soon, says Jaitley

Public sector banks have promised to further lower interest rates in the coming days, Finance Minister Arun Jaitley has said.

After a three-hour performance review meeting of public sector banks on Friday, the Finance Minister said, “Some parts of it (rate cuts) have been passed on to customers, while some banks have not… Some of the bankers feel that over the next few weeks they would be in a position to work out greater cuts.” The issue about interest rate reduction gathered momentum when despite the Reserve Bank of India cutting the Repo Rate by 75 basis points in three tranches since January, banks have so far lowered their lending rate only by 10-35 basis points. In fact, last week, the RBI said it expects banks to fully transmit the rate cuts over time.

The Finance Ministry also said that the government would favourably consider funds infusion for these banks. Jaitley said the banks cited problems relating to balance sheets and higher rates of small saving schemes for not passing on the rate cuts.

“They (the banks) have asked us to look at those small saving schemes. All I can say is that at the meeting the environment was optimistic,” Jaitley said. Since the deposit rates of most of the banks are already lower than small saving schemes, bankers fear that any further cut in rates will lead to a diversion of funds.

Asked about the possibility of revision of rates on small savings, he said, “We will look into that.”

Capital infusion plan He also said that banks have pitched for more capital. “Banks have made a strong case for it and I do believe that it's a case which merits a serious look by the government.” He, however, did not specify how much more the government was ready to inject.

The government plans to infuse ₹7,940 crore of capital this year, but the RBI wants to increase the quantum.

Meanwhile, public sector banks have begun making presentations on their capital requirements to the Finance Ministry.

The first set of banks, comprising UCO Bank, United Bank of India and Allahabad Bank, presented their case on Friday, while Punjab National Bank, Punjab & Sindh Bank and Oriental Bank of Commerce will do so on June 18.

Three more banks will make presentations on June 24-25 (in Mumbai) and on July 3 (Bengaluru). All these meetings will be attended by Minister of State for Finance Jayant Sinha and Financial Services Secretary Hasmukh Adhia. Based on these presentations, the Finance Ministry will ask the Cabinet for additional capital.

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