Home, auto loans will come down further, says FM

Interest rates on home, auto and other loans are likely to come down further with banks agreeing to finance minister Arun Jaitley's suggestion that they bring down lending rates further on a par with the Reserve Bank's 75 basis point reduction in repo rates over the past few months.

At a meeting to review financial performance of public sector banks and financial institutions for the 2014-15 financial year, finance minister Arun Jaitley on Friday prodded chief executives of both the public sector banks and private sector banks to effect a reduction in lending rates corresponding to RBI's 75 basis point reduction in repo rate.

After discussing a host of issues like transmission of rate cuts, problems of higher bad loans and health of the economy with heads of state-owned banks, the minister told reporters that financial services secretary would look into projects held up for want of funds and exuded confidence that soon economy would move to higher growth trajectory.

While Jaitley said the government would consider favourably the demand of PSU banks for more capital infusion, over and above what was earmarked in the budget for 2015-16, he asked bankers to think of ways to boost lending to the growth sectors.

The finance minister expressed concern over the modest growth of 7 per cent in domestic credit by public sector banks and took stock of the sectoral profile of the total domestic credit flow of Rs49,01,000 crore during 2014-15.

While agricultural credit grew by 17.33 per cent, Jaitley urged bankers to achieve the target of 20 per cent growth in educational loans.

He also noted that the 16 – 18 per cent growth in the housing loans could  go up to 30 per cent, considering the scope of priority sector housing loans, which are intrinsically secure loans and which are required to provide a stimulus to overall growth.

As regards the transmission of rate cuts by the Reserve Bank, the minister said the banks gave detailed presentation on how each one of them reduced their lending rates.

"Some part of it (rate cut) have been passed on to customers, while some banks have not passed on. I feel over the next few days ... Some of the bankers felt that over the next few weeks, they would be in a position to work out greater cuts," the Minister said.

Some banks, Jaitley said, expressed their inability to pass on the rate cuts on account on problems with their respective balance sheets and higher rates on small savings schemes.

However, he said that "the environment was optimistic. Since the movement in the banking sector appears to be for the better, this gives up a further hope of a greater recovery as far as economy is concerned."

RBI since January had reduced the repo rate by a total of 0.75 per cent in three tranches while some banks, including market leader SBI, had cut interest rates by 0.25 per cent.