Apr 19, 2012, 07.31 PM | Source: CNBC-TV18

Interest Rates: Not ordered a cut but advised a relook, says bank secy

Refuting reports that the government has ordered PSU banks to lower rates, banking secretary DK Mittal told CNBC-TV18 that they have only "advised" PSU banks to "re-look" at their rates which are higher than private banks.

DK Mittal, Secy, Banking, GoI
Though desired, there is no truth in news doing the rounds public sector banks have been ordered to cut rates after repo rates were slashed by 50 bps on Tuesday. Refuting such report published by a section of the press , banking secretary DK Mittal told CNBC-TV18 that they have only "advised" PSU banks to "re-look" at their rates which are higher than private banks.

Below is the edited transcript DK Mittal's interview on CNBC-TV18.

Q: There are reports that you have written to bank chairmen asking them to cut interest rates after the repo cut and the CRR cut by the Reserve Bank of India (RBI), is that true?

A: No, that is not correct. What we have advised banks is to relook at the whole structure of the rates and that is in larger perspective, particularly of retail loans, where the public sector banks are charging higher rates and higher amount than the competitor. But we have suggested them to relook at the whole rate policy that they have in view of the repo and the CRR cut.

Q: In case after the review some of them believe there is no case to lower their, for instance, base rates, would that satisfy you? 

A: Yes 100% because that is commercialism. The lending rates will have to go along with the deposit rates. We will have to track both and each bank has a different kind of a deposit portfolio. So they will have to act inline with the deposit portfolio they have.

Q: There is a feeling in the market that perhaps lending rates will be reprised faster than deposits and that could lead to a compression in margins. Do you think margins could be under some kind of pressure if the base rates were to be cut and the repo cut being passed through because deposits are not very high currently?

A: I will not say that the scenario is not possible. But that is why the banks will have to take a call as to how they are placed in terms of the deposits, the levels of CASA (current account, savings account) with them and their ability to mobilise CASA.

We have suggested banks to take that call instead of reaching a stage where they would not be able to decide on anything. This is important from the economy and banking point of view.

Q: You mentioned that lending rates of public sector banks were higher than that of private banks?

A: Yes, that is right. Particularly in the case of housing loans which are of Rs 25 lakh and above. Most of the public sector banks, with the exception of the State Bank of India (SBI), lend at rates much higher than the private sector banks and non-banking financial companies (NBFCs).

Q: Have you directed PSU banks to lower lending rates?

A: No. But we have pointed it out to them because it contained an entire gamut of factors affecting the retail growth such as pricing, procedures, timelines and appraisal pressure. Retail loans is a segment that is reasonably vibrant with lesser risks.

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