FM to meet PSB chiefs next week

Might ask for easing lending rates at performance review NPA rise and loans to priority sectors head the agenda

Finance Minister P Chidambaram might ask public sector banks (PSBs) to review their lending rates, at a meeting with their heads on August 18.

The meeting comes when the country is faced with slowing growth and drought in some parts. And, fiscal and monetary space is limited in trying to spur growth and investment.

Topping the list of issues to be discussed are a spurt in banks’ non-performing assets and the siuation regarding loans to priority sectors such as agriculture, housing, education and small & medium enterprises.

“The minister wanted to meet the banks. Their first quarter performance will be reviewed. He might also take up other issues,” said a ministry official who did not wish to be identified.

Chidambaram, who took charge of the ministry just 10 days earlier, would be meeting the chiefs of state-run banks after four years. He’d previously reviewed their performance in November 2008, during his earlier stint as minister in charge.

At the time, he had asked banks to lower lending rates for customers, as inflation had touched 10.89 per cent in June 2008 and the repo rate (at which the Reserve Bank lends money to banks) was 7.5 per cent. The economy grew 6.7 per cent during that year, against 9.3 per cent in 2007-08.

The situation today is as bad, with inflation at 7.25 per cent in June and the repo rate at eight per cent. The economy is expected to grow by 5.5 to 6.5 per cent this year.

Banks have not lowered rates in line with the recent repo rate cut by RBI. And, the central bank has made it clear it does not have much room for lowering policy rates, as inflation remains high. Moreover, while industrial output grew 8.5 per cent in June 2008, it contracted sharply by 1.8 per cent in June this year.

In a statement earlier this week, Chidambaram had hinted at some monetary easing by RBI. He said prevailing interest rates were high and calibrated risks could be taken to stimulate investment and ease consumer burden.

In the meeting, the minister would discuss issues pertaining to advances and deposits of banks, return on assets, profit per employee, and percentage of electronic transactions. The financial inclusion plans, performance of the Swavalamban scheme under the New Pension System, lending to minority communities and issues related to regional rural banks would also be discussed.