P Chidambaram tells banks to cut rates to spur growth

MUMBAI: Union finance minister P Chidambaram on Thursday nudged banks to lower interest rates in an effort to drive growth and pass on rate-cut benefits to retail and corporate borrowers. "Since 2012, the RBI had cut repo rates by 125 basis points. However, commercial banks have reduced their rates by only 30 basis points," he said, while addressing the annual general meeting of the Indian Banks' Association.

"As CPI inflation and deposit rates fall, I would urge commercial banks to translate monetary policy to retail borrowers and firms through lower lending rates," he said. The finance minister said that both the wholesale price-based inflation as well as core inflation have fallen sharply, even though the retail or CPI inflation is still high. " Food inflation is still elevated, but I hope it will come down with the harvest of rabi crop," he said.

Referring to the decline in the fiscal deficit to 4.9% of GDP in 2012-13, he said, "It will be quite easy to achieve the fiscal deficit (target) of 4.8% in 2013-14. We will have to be better than what we have targeted."

Speaking on the new banking licence, Chidambaram said he was hopeful that some new bank licences would be issued before March next year. "The RBI has released guidelines for licensing of new banks and I hope that some banks will be licensed before the end of the financial year," he said.

Entry of new banks, rapid expansion in the number of branches, and a more spatial distribution of location of banks will all lead to greater financial inclusion, he added. "We need more banks, we need more branches. We need them in small towns, in the block headquarters, and the backward regions of the country, especially the North Eastern and hill states," he said.

The Reserve Bank of India had issued guidelines for new bank licences in February and it would accept applications until the end of July.

Earlier this week, the RBI issued clarifications on the norms and made it mandatory for aspirants to float a holding company that would house the bank. The bank-holding company should be floated within 18 months of getting the in-principle nod, it said.