New Delhi: Finance Minister Arun Jaitley on Friday expressed the hope that those commercial banks which have not passed on to borrowers the interest rate cuts made by the Reserve Bank of India (RBI) this year, would do so over the next few weeks.
“There was a presentation made by each bank on the RBI rate cuts of 25 basis points each from December to June. Some banks have not passed on the rate cuts. I hope over the next few weeks they will be in a position to reduce rates,” Jaitley told reporters here after meeting with heads of public and private sector banks.
“The banks expressed problems in their balance sheets. They also asked us to take a relook at the small saving schemes, which with their high rates at 8.5 to 9 percent is pushing up their deposit rates,” the finance minister said.
“The banks said that when the repo (RBI’s short-term lending rate) rate was raised, they were slower to raise their interest rates, and now they are also slower to bring them down,” he added.
Following his meeting with RBI Governor Raghuram Rajan on Thursday, Jaitley was expected to take up the matter of banks passing on RBI’s earlier rate cuts.
This was the finance minister’s first meeting with Rajan after RBI, last week, reduced its repo rate, at which it lends to commercial banks, from 7.5 percent to 7.25 percent. In three separate cuts this year, the RBI has reduced the repo rate, at which it lends to commercial banks, by 0.75 percent.
“Our policy is neither too conservative, nor too aggressive — but just right for the given moment,” Rajan said at a post-review press conference, and made it clear that he would like to see the commercial banks passing on the rate cuts down the line. In April, Rajan said banks have to pass on the previous rate cuts, and dismissed claims that cost of funds remained too high.
On demands of PSU banks for greater capital infusion, Jaitley said there is a “merit” in their case and the government will seriously look into it. The final decision to this effect will be taken by the Cabinet, he said.
Government has earmarked Rs 7,900 crore in the Budget 2015-16 towards capital infusion in PSU banks. The RBI had earlier said that the amount is inadequate and needed to be enhanced.
On projects stalled for want of funds, Jaitley said the Financial Services Secretary will prepare a list of such projects and try to resolve the issue. “Both the Secretary and if necessary at my level, we will be calling for a meeting of the representatives of the state governments, those projects and concerned departments, over the next few days and try to resolve the issues,” he said.
As regards the non-performing assets (NPAs), Jaitley said the situation has improved in the January-March quarter, but it is important to watch the developments over the next 2-3 quarters before reaching any conclusion. “In quarter ending March 2015, NPAs had come down from 5.64 per cent to 5.2 per cent. One quarter does not indicate a pattern. So I would wait for some more time before realising what the pattern is. Banks are themselves of the assessment that it would take them 2-3 quarters to reach a somewhat more greater comfort level,” he said.
The Minister also expressed the confidence that NPA situation would improve with greater spending thrust of the government and further pick up in the economy.
