In order to boost the consumers demand, Finance Minister P Chidambaram urged public sector banks (PSU) to review their minimum lending rates or base rates to bring the cost of borrowing down to stimulate consumer demand, the main driver of an economy that has been pulled down by high inflation and interest rates. The Reserve Bank of India (RBI) has reduced its key policy rates (repo) by 1.25 percentage points since January 2012, but banks have passed on only 0.30 percent to consumers. Presently, the average lending rates for PSU banks is around 10.25 percent.
After meeting the heads of state-run banks, Chidambaram said that reduction of the base rate will be a powerful booster to economic growth and powerful stimulus to the credit growth. By adding further, he said that banks should look at the base rate as the central bank has cut the policy rates by 125 basis points, thus some part of this must indeed be passed on to borrowers. On the other hand, bankers 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 percent. However, they assured finance minister that they would review their base rate this month and will take appropriate decision on cutting the base rate.
Further, Chidambaram also advised the banks to focus on their top 30 non-performing accounts and take action recovery against the willful defaulters. Recently, the banking sector has taken various steps to improve the asset quality, and a significant improvement has been witnessed in the gross NPA ratio of banks.
After meeting the heads of state-run banks, Chidambaram said that reduction of the base rate will be a powerful booster to economic growth and powerful stimulus to the credit growth. By adding further, he said that banks should look at the base rate as the central bank has cut the policy rates by 125 basis points, thus some part of this must indeed be passed on to borrowers. On the other hand, bankers 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 percent. However, they assured finance minister that they would review their base rate this month and will take appropriate decision on cutting the base rate.
Further, Chidambaram also advised the banks to focus on their top 30 non-performing accounts and take action recovery against the willful defaulters. Recently, the banking sector has taken various steps to improve the asset quality, and a significant improvement has been witnessed in the gross NPA ratio of banks.
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