RBI cuts interest rates: Lending to slowly become reasonable, says Jaitley

Lending rate of 14-15% will make India uncompetitive in the global market: Arun Jaitley

Interest rates will "slowly" become "reasonable", Finance Minister Arun Jaitley said on Friday, a day after the RBI cut interest rates by 0.25 per cent.

He also said that the government insurer LIC has come out with a pension scheme to offer fixed rate of interest to investors.

A day after the RBI cut the interest rates, Jaitley said lending rate of 14-15 per cent will make India uncompetitive in the global market and industry cannot invest at such higher interest rates.

"Slowly interest rates will become reasonable," he said in the Lok Sabha while replying to a debate on the Banking Regulation (Amendment) Bill, 2017.

He added that pension funds are safe investments.

Jaitley said the government has taken steps to offer stable interest rates to investors so that they are not lured into chit fund schemes, which attract investors by offering a meagre 1-1.5 per cent interest rate higher than what is given by banks.

He said at a time when inflation was running high at 10 per cent bank deposit rates were high at 9 per cent. But loans were extended by banks at 14-15 per cent interest rate and with such high interest rates global industrial investments will not come in.

Earlier in the Rajya Sabha, the minister that the government has brought a pension scheme for senior citizens and retired persons that guarantees 8 per cent interest rate.

Prime Minister Narendra Modi had announced the Pradhan Mantri Vyaya Vandana Yojana (PMVYY) in December last year which was launched in May and offers senior citizens 8.3 per cent fixed rate of return.

He defended the State Bank of India's decision to cut interest rate on saving accounts of less than Rs 1 crore, saying the move was in sync with reduction in lending rate.

High interest rate on savings and fixed deposits was during a time when inflation was 10-11 per cent and sluggishness was setting in the economy. So when the lending rate came down, so did savings account, Jaitley said.

The Reserve Bank, in its third bi-monthly monetary policy of the fiscal, yesterday had reduced the repo rate after a gap of almost 10 months by 0.25 per cent to 6 per cent.

The new repo rate at 6 per cent is the lowest in six- and-a-half years. The last rate cut was effected in October 2016.

Finance Ministry had said that the rate cut is an important step to achieve sustained growth consistent with moderate inflation and India's potential.

The government had been pitching for a rate cut to boost economic growth amid retail inflation falling to a historic low of 1.54 per cent in June.