labels: Bank general
Chidambaram leaves rate decision to lenders and RBI; says loan waiver won't hurt banks news
06 March 2008

Mumbai: Finance minister P Chidambaram today said he agreed to the demand for lower rates of interest on housing loans of less than Rs20 lakh, but a decision should come from lending banks and financial sector regulator the Reserve Bank of India.

"I shall certainly bear in mind that there is public demand that interest rates for borrowers, who borrow up to Rs20 lakh, must be lowered," Chidambaram said during an interaction with industry chamber Assocham.

He said nearly 80 per cent of housing loans are below Rs20 lakh in value and these have less risk weight than those above Rs20 lakh, adding that the banks have incentives to lend to these borrowers at lower interest rates.

"I made a number of efforts to impress upon bankers in this regard ... it is a constant effort that I will have to make... bankers will have to take a call, RBI will have to take a call," he said.

He said the RBI governor`s position is also an unenviable one in that he has to strike a balance between low inflation and high growth.

Speaking to reporters after a meeting of the board of the Reserve Bank of India, Chidambaram said the Rs60,000 crore loan waiver for the agriculture sector, announced in the 2008-09 budget, would, in fact, strengthen banks' finances.

He said the banks would be compensated as and when loans became due and the scheme would be funded through government revenue.

"The banking sector will be compensated in a way that the banks will not be constrained at all," Chidambaram said.

"The RBI is fully geared to support the government in implementing the scheme in a manner that the banking sector will be strengthened, not weakened," Chidambaram quoted the RBI governor as saying.

The debt relief package applies to farm loans made by public sector banks up to 31 March 2007, and overdue on 31 December.

Borrowers with up to 2 hectares of land would be eligible for a complete write-off of loans, which remained unpaid up to 29 February 2008.

Chidambaram said the government, the RBI and banks would work together to implement the scheme.


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Chidambaram leaves rate decision to lenders and RBI; says loan waiver won't hurt banks