A rollback of the recent increases in prime lending rates (PLR), and consequently in home, car and retail loan rates, of public-sector banks looks like a distinct possibility.
NEW DELHI: A rollback of the recent increases in prime lending rates (PLR), and consequently in home, car and retail loan rates, of public-sector banks looks like a distinct possibility.
Speaking to newspersons in Delhi on Friday, finance minister P Chidambaram insisted that the boards of state-owned banks must take into consideration the government’s concerns over rising interest rates.
In a letter to banks sent on Thursday, the joint secretary in the finance ministry, Amitav Verma, asked them to take prior approvals from their boards before hiking their PLRs.
Most bankers see this as a thinly veiled diktat from North Block, and Chidambaram’s statement seems to confirm these fears. On August 1, the big public sector banks — State Bank of India (SBI), Punjab National Bank, and Bank of Baroda, among them — hiked their PLRs by 0.25%, their second hike this year.
With the ministry frowning on this, SBI may now roll back its hike as early as next week. SBI chairman OP Bhatt told reporters at a bank function in Delhi that the board would meet next week to reconsider the increase in lending rates.
“As we have been advised (by the finance ministry), we are putting up the proposal to the board. We will have to consider the government’s view. The board may take a view either way,” Bhatt said.
Asked if state-owned banks are at a disadvantage vis-à-vis private banks as they have to heed the government’s diktat, he merely said: “The public sector banks have a much larger role to play”.
Finance ministry officials said the government was upset that banks had ignored an earlier letter dated July 28 from the banking division asking them to consider all aspects of any interest rate changes in their respective boards.
Despite the letter, five public sector banks went ahead with the rate hike. The decision was taken by their asset liability committees, which are authorised by the boards to make interest rate adjustments.
This prompted joint secretary Verma to write a second letter on Thursday to the five bank chiefs, directing them to keep their decisions in abeyance till they get their respective boards to discuss all relevant issues.
The finance minister was in not the least apologetic about the letter even though it is being seen as a brazen attempt at interfering with the decisions of “autonomous” banks.
“Yes we have advised banks that the decision on rate increase has to be taken by their respective boards,” Chidambaram said.
“What is wrong in it?” he quipped when asked whether this would be construed as governmental interference in the autonomous functioning of banks. Since the government has majority stakes in the banks and there are government nominees on the boards, it is right for the ministry to advise banks on interest rate hikes, he claimed.
The finance minister, however, maintained that he was not directing the banks to set a particular rate of interest. “It is for the respective boards of the banks to take a decision”, he said. “But the government has a view on interest rates and the government nominees on the bank board will represent that view”, Chidambaram said.
The finance ministry has never been shy of admitting that it favours lower rates and adequate credit availability for “productive sectors” of the economy to keep the growth momentum going.
In a meeting with public sector bank chiefs on July 21, the finance minister had made it clear that since the inflation rate was moderate, it would be logical for interest rates too to stay moderate.
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