FM asks PSBs to lower lending rates further

FM asks PSBs to lower lending rates further
The Economic Times, June 11, 2009, Page 9

BORROWERS YET TO GAIN FROM RBI CUTS: PRANAB

Our Bureau NEW DELHI

FINANCE minister Pranab Mukherjee urged state-run banks on Wednesday to cut lending rates further to ensure inclusive growth and rapid recovery in the economy.

Mr Mukherjee, who met chiefs of state-run commercial banks in the Capital, said the sharp rate cuts by RBI are yet to reflect in the borrowing costs of consumers. The central bank has cut its main lending rate by 425 basis points since October to 4.75% and its main borrowing rate by 275 basis points since December to 3.25%.

Chiefs of various banks, who attended the meeting, said they would take a call on the quantum of cut in lending rates in the coming weeks. “Our bank will decide on lowering interest rates by the end of this month,” OP Bhatt, chairman of SBI, told reporters after the meeting.

The overall business of public sector banks has grown by about 26% at a time when credit growth of both private sector and foreign banks has been declining and resources from non-banking financial sources are contracting.

The finance minister pointed out that consolidation of banks is desirable to improve competitiveness and mitigate financial risks. “Public sector banks should look at consolidation as a serious option in order to reduce the risk to financial stability, and to face competition... Any consolidation initiative in the banking sector would be viewed positively and the government, as a majority shareholder, would continue to play a supportive role in this process,” said Mr Mukherjee.

Smaller government-run banks are lagging behind their larger peers not only in terms of size, but also in consistency and efficiency. While the top five state-owned banks (SBI, Punjab National Bank, Canara Bank, Bank of Baroda and Bank of India) posted an average growth of over 40% year-on-year in their net profit last fiscal, none of the smaller players could touch that mark.

In many cases, the profit growth nose-dived. The profit of Allahabad Bank declined 19% in FY09 after growing 30% in FY08 while profit growth of Dena Bank fell to 18% in FY09 compared to 79% a year earlier. A similar trend was visible in the case of Bank of Maharashtra, Corporation Bank, Indian Overseas Bank and Karnataka Bank.