The Hindu Business Line : Chidambaram for lower rate regime

Moderating rates: The Union Finance Minister, Mr P. Chidambaram, at a meeting with the chief executives of public sector banks in the Capital on Friday. –

Our Bureau

New Delhi, Jan. 4 In a clear pointer towards a softer interest rate regime, the Finance Minister, Mr P. Chidambaram, has sent out a signal to the Reserve Bank of India and the public sector banks (PSBs) that he would prefer the lending and deposit rates to move down by 50 basis points to stimulate both investment and consumption and thereby boost economic growth.

Addressing the quarterly performance review meeting with chief executives of PSBs here today, Mr Chidambaram expressed the hope that interest rates would moderate in the medium term on the back of a “supportive” monetary policy from the central bank.

He also advised the PSBs to desist from any competitive bidding for bulk deposits in the current quarter, stating that they should keep the cost of money low so that they could keep the cost of lending low.

“I would like – I can’t wish this — both (lending and deposit rates) move down 50 basis points so that it stimulates investment and consumption. This, of course, has to be decided by each bank having regard to its books and the asset-liability matches and mismatches. If monetary policy is also supportive, it is possible to look forward to period of stable and, perhaps, some moderation in interest rates,” he told reporters after the meeting.

To tackle the sluggishness in consumer durables and non-durable segments, he advised the PSBs to ensure that adequate credit is available to consumers. Stating that he was “by and large happy” with the way PSBs were discharging their social and commercial objectives, he also said that their performance was satisfactory on areas such as agriculture credit, credit to SMEs, to minorities and in the case of education loans.

The Finance Minister said he had asked PSBs to aggressively expand branchless banking. The final report of the committee on financial inclusion, chaired by Dr C Rangarajan, Chairman of the Prime Minister’s Economic Advisory Council, was submitted to him on Friday.

The two main recommendations are that “each branch of each bank” should open 250 new accounts every year and also that individuals be appointed as banking correspondents. The RBI allows only NGOs and micro finance institutions to be appointed as banking correspondents.