Govt pressures state-run banks to cut rates

With the economy on a downswing, and India Inc. complaining of credit crunch, the Government asked all nationalised banks to cut rates after the RBI's aggressive monetary easing measures last week. Most public sector banks, including the State Bank of India (SBI) obliged the Government by slashing their prime lending rates by up to 75 basis points, but private banks were still reluctant to do so, though they promised to take up issue shortly.

Finance Minister P. Chidambaram said that Indian banks will be able to meet credit demand for crucial sectors such as housing and SMEs, and were on track to achieve the annual target for agriculture loans. Speaking to reporters after a meeting with the head honchos of nationalised banks in New Delhi, Chidambaram said that Indian banks will be able to ensure adequate flow of credit at appropriate price.

The Finance Minister held the meeting to review the liquidity situation and quarterly performance of the state-run banks. He held wide-ranging consultations with the PSU bank executives relating to the impact of the global financial meltdown on the Indian banking sector. The meeting came a day after the captains of Indian industry met Prime Minister Dr Manmohan Singh, and demanded steps for enhancing liquidity, besides further steps to create an environment conducive for lowering of interest rates.

The Reserve Bank of India (RBI) will keep a close watch on liquidity and public sector banks will report credit delivery every two weeks, Chidambaram said, adding that he expected encouraging decisions on credit pricing and delivery. Public sector banks are facing higher credit demand and they have been asked to assess capital requirements for the next three years. Five nationalised banks have Capital Adequacy Ratio (CAR) of under 12%, he added.

The Finance Minister also said that the National Housing Bank and SIDBI have sought a credit line of Rs100bn from the Government. The RBI will consider the demand for credit line from the NHB and SIDBI, he said. Chidambaram also announced that the credit guarantee on loans will be extended to Rs10mn.

Separately, Finance Secretary Arun Ramanathan said that private sector banks were expected to consider reducing lending rates in the next few days and will support credit lines to non-banking finance companie