Centre sets Rs 1-lakh-cr retail loan disbursal target for PSBs

To aid economic recovery, loans to be offered at low interest rates

The finance ministry expects public sector banks to disburse about Rs 1,00,000 crore of consumer loans at low rates this festive season, say bankers familiar with the development.

“During our discussion with the finance minister, it was decided public sector banks would lend Rs 1,00,000 crore to their retail customers. To revive economic growth, these loans would be made available at low rates of interest. Additional capital would be provided by the government depending on the performance of each bank,” said a senior executive of a mid-sized public sector bank (PSB), requesting anonymity.

Bankers said several public sector banks had already taken initiatives to offer retail loans at low prices. While some banks had started offering these loans at the base rate (the minimum lending rate), most had waived fees and processing charges on vehicle finance and mortgages.

A few banks have introduced easy finance schemes for the purchase of television sets, refrigerators, air conditioners, computers and other electrical and electronic gadgets.

“Individually, banks have not been given a specific target. We have set an internal target of disbursing additional consumer loans during this festive period, based on our market share,” said the general manager and head of retail banking at a PSB.

However, the rising cost of funds has led to doubts on whether banks would be able to continue their consumer loan offers at low interest rates. State Bank of India has already announced it would increase its minimum lending rate by 20 basis points, effective Thursday.

Last week, private sector lender HDFC Bank had increased its base rate by 20 basis points. Concerns have also been raised over asset quality deterioration, as the last few months have seen fresh slippages in retail advances. At an aggregate level, the net non-performing asset ratios of banks in India had risen annually as of March-end 2013. During this period, public sector banks had seen the highest rise (49 basis points) in bad loan ratio.