Finmin expects revival in industrial activity as banks cut rates
Aug saw some recovery after stagnation, decline in previous months
The government is expecting a pick-up in manufacturing activity with reduction in interest rates on housing and auto loans by public sector banks (PSBs). In the recent weeks, out of 27 state-run banks, 19 have cut interest rates on auto loans, while 13 have slashed the rates on housing loans. Besides, most of the banks have either reduced or completely waived off the processing fee on such loans.
“Banks and industry have come together to offer lower rates to customers for housing loan, car loan and other consumption loans. It is expected that this will create substantial demand for the manufacturing sector in the near term as well as in the long term,” said a finance ministry official.
Industrial production showed some recovery in August by growing at 2.7% after showing stagnation and even decline in the previous months. An increase in factory output at a time when the inflation is ruling high at 7.8% will give some cushion to the Reserve Bank of India to cut policy rates on October 30 and support growth which slid to 5.2% for quarter ended June 2012.
In his meeting with heads of PSBs in August, Finance Minister P Chidamabaram had asked banks to make EMIs (equated monthly installments) affordable for consumers so that they could buy consumer durables, two wheelers and cars to keep the engine of manufacturing going.
“The middle-class is complaining about increasing EMIs and stretching payment cycle. The middle-class, which consumes consumer durables, is postponing purchases, and that is not good for the industry,” the finance minister had said.
The banks have cut interest rates in the range of 0.10 basis points to 200 basis points. The discount, however, has been offered by most banks as a festival bonanza for limited period till the end of this year. The official added more banks were likely to lower interest rates in the next few days.
Allahabad Bank has reduced the rates on housing loans by up to 200 basis points, whereas Bank of Baroda has offered concession of 175 basis points on auto loans. Some banks like Corporation Bank are also offering additional concession if both housing and auto loans are availed together.
Some other offers from banks include full waiver of prepayment charges, concession on buying gold coins, and extension of repayment period.