More pressure on banks to cut interest rates

After 50 basis points cut in the policy rates, banks are expected to lower their base rate soon. This issue among others was discussed in a review meeting between the Finance Ministry and Bank Chiefs. The meeting was chaired by the Finance Minister Arun Jaitley and attended by the Minister of State for Finance Jayant Sinha among others.

“With regard to cut in base rate by banks let’s wait and see how that plays out. We have a very competitive financial services industry and we will see once certain banks starts to take action we will see how it unfolds,” Sinha told reporters after the meeting. The RBI cut policy rates twice by 25 basis points each first in January and the latest one on a day after budget.

However, only two public sector banks, United Bank of India and Union Bank of India cut the base rate in January while only State Bank of Travancore has lowered the base rate now.

Banks have indicated that they will take a call next month. Sinha also said that during the meeting the Government tried to understand where the banks stood on this and the banks pointed out what they have already done. “As far as retail loans are concerned they have already brought down rates a fair bit,” he said.

The meeting reviewed performance of all the 27 public sector banks for quarter ending December 27 besides budget announcements. “Obviously we discussed capital raising plans, what we have agreed to do is that we will get into those in more detail with each individual bank. You must understand that there are 27 public sector banks at this meeting...each banks situation is different, Each bank for instance has different shareholding from the government, has different sort of valuation multiples, price to book etc,” he said.

Both, the Finance Ministry and Banks discussed the NPA (non performing assets or bad debts) issue plus the situation in stalled projects. “There are a variety of measures that we are planning to undertake as far as stalled projects are concerned. And also we are thinking about the ways in which resolution of the NPA situation can be done more speedily,” he said.

Talking about consolidation, he said that the Government’s approach, after ‘Gyan Sangam’ ( a meeting between the PM and Banks in Pune in January), has been to find whether consolidation or good or any of its alternative. “So that's really what banks are working on now as to figure out for each of them individually what are in fact best strategies for them,” he said.

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