MUMBAI: Government owned Bank of India took a lead in lowering its lending rate after the finance ministry nudged bank chiefs on Wednesday to reduce rates to kickstart the economy. Bank of India informed the stock exchange that’s its base rate would be lowered from 10.25% to 10% with effect from July 8.
Most other PSU banks have pegged their base rate at 10.25% while State Bank of India’s is lowest at 9.70%.
Finance minister, P Chidambaram in it annual review, he urged banks to reduce rates by stating that ‘someone will have to take a bold move or things will not improve. But if banks lower rate, even if it is token rate cut, it will send a strong message.’
Banks had last reduced rates in January by by around 25 basis points after RBI cut repo rate and cash reserve ratio by 25 bps each. However, there after RBI lowered repo rate by 50 bps but banks have refrained from lowering rates on grounds that a cut in repo rate does not reduce their cost of funds.
During the meeting, FM asked each bank about measures that can be taken to drive growth and improving demand for loan from the manufacturing sector. FM also expressed his concern about poor deposit growth, “If interest rates are an hindrance for deposit growth, it has to be addressed.” he said, according to bank chiefs who were present in the meeting. PSU bank’s credit rose 15.6% while deposits rose 14.9% in fiscal year 2012-13.
He was very critical about RBI contribution towards growth. The RBI’s role is not just to control inflation but also to support growth and job creation.