Jaitley asks banks to pass RBI rate cuts to borrowers

 In a meeting with heads of commercial banks here on Friday, Finance Minister Arun Jaitley on Friday asked banks which have not passed on to borrowers the interest rate cuts made by the Reserve Bank of India (RBI) this year to do so over the next few weeks.

A finance ministry release after the meeting said that Jaitley “asks the chief executive officers of both the public sector and private sector banks to effect a corresponding rate cut of 75 basis points in response to RBI’s rate cut of same basis points since January 2015”.

“There was a presentation made by each bank on the RBI rate cuts of 25 basis points each. 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 the meeting.

“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,” he 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.

In three separate cuts this year, the RBI has reduced the repo rate, at which it lends to commercial banks, by 0.75 percent.

At a post-review press conference earlier this month, Reserve Bank Governor Raghuram Rajan made it clear that he would like to see the commercial banks passing on the rate cuts down the line.

After RBI’s April review, Rajan had said banks have to pass on the previous rate cuts, and dismissed claims that cost of funds remained too high.

Jaitley also said the finance ministry will, over the next few weeks, prepare a list of projects stalled due to lack of finance to set in motion the process of their revival and thus bring down the non-performing assets, or distressed loans, of banks.

“Many stalled projects have started. The secretary, department of financial services, in consultation with others, will prepare a list of projects stalled because of finance,” he said.

“We will deal with these stalled projects directly. We will call representatives of state governments, of the projects and the departments concerned over the next few weeks,” he said.

As per the ministry’s Economic Survey brought out in February, stalled projects as on December-end amounted to Rs.880,000 crore-worth.

On NPAs, Jaitley noted that “in the fourth quarter of January to March 2015, NPAs had come down from 5.64 to 5.2 percent. But, as I’ve said earlier, one quarter doesn’t indicate the pattern… I would like to wait”.

Noting the heads of banks said they would take another two to three quarters to reach “a somewhat greater level of comfort” on NPAs, he said that “banks will have to make greater effort to reduce NPAs and those with higher levels were asked to explain the reasons for it”.

Gross NPAs of state-run banks have gone up to Rs.260,531 crore as in December 2014.

On the demands of state-run banks for greater capital infusion, Jaitley said there is a merit in their case and the government will consider it, adding that the final decision will be taken by the cabinet.

The finance ministry statement said all public sector banks have been asked to make presentations in the matter to the department of financial services in the presence of Minister of State Jayant Sinha and the department secretary in the next three weeks.

The government has earmarked Rs.7,900 crore in Budget 2015-16 for infusing capital in public sector banks. The RBI had earlier said the amount was insufficient and required to be enhanced.