As Govt prods banks to cut rates Loans likely to get cheaper

Home and other retail loans and industrial lending may become cheaper soon as public sector banks are likely to cut interest rates after the govt prodded lenders to provide credit at reasonable rates to spur the economy.

"Our bank will decide on lowering interest rates by the end of this month," country's largest lender SBI's Chairman O P Bhatt told reporters after a meeting between PSU bank heads and Finance Minister Pranab Mukherjee at New Delhi on Wednesday.

Expressing concern over non-availability of credit at affordable prices from banks, Mukherjee said, "As a financial intermediary, the banks have to stand-by to provide credit at reasonable rates. This is an area of concern in many quarters both within the government and outside," he said. He said reduction in key rates by RBI is not getting adequately reflected in the reduction of prime lending rates by banks.

"I would urge the banks to address these concerns expeditiously and in adequate measure. This will help restore the environment for rapid growth and ensure that the growth process benefits all our people," Mukherjee said.To a query as to how much the rates could be cut, the finance minister told reporters, "All possibilities will be explored.I can't quantify it (rates cut)."

Canara Bank and Corporation Bank also echoed Bhatt's statement on rate cuts. The second largest PSU lender PNB, however, said it does not see any revision in interest rates in near term as its rates are the lowest in the market.

Asking banks to cut interest rates to spur economic growth assumes importance in the wake of Prime Minister Manmohan Singh remarks that India can achieve GDP expansion of 8-9 percent a year despite the global slowdown.

Industrialists have been asking banks to cut prime lending rates to single digit to propel demand and provide cheap credit to businesses. Prime lending rates stand in the range of 12.75-13.25 percent.

Mukherjee also said India faces many challenges on the economic front."The present Government is committed to the overall development of the economy. For the economy to prosper, the business has to flourish. Our role is to provide an enabling environment for the business to flourish by way of various pro-growth policy announcements," he said.

Though India beat market expectations to post 6.7 percent economic growth last fiscal, manufacturing growth remained a concern as it saw negative growth in the fourth quarter of the last fiscal.

To enable the industry access credit after sources of funds dried up post-Lehman Brothers collapse in mid-September, 2009, RBI has been easing money supply in the economy. The central bank has so far cut short-term lending rate (repo) by 4.25 percentage points, short-term borrowing rate (reverse repo) by 2.75 percentage points and mandatory deposit requirements for banks.However, cut in key rates by RBI is not getting reflected in lending rates reduction by banks.