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LEADING banks have told corporates that there can be no dramatic reduction in lending rates. While the government is nudging banks to cut rates, lenders have told apex industry bodies that rates cannot be lowered to the extent that corporates are demanding.
In a meeting last week, the Indian Banks' Association (IBA), an association of bank managements, spelt out its views to the Confederation of Indian Industry (CII) and Federation of Indian Chambers of Commerce and Industry (Ficci).
"We have told corporates that lending rates can be cut by 50 to 100 basis points (bps) from the current level in the near to medium term," said a bank CEO, who attended the meeting. Corporates have asked for a 400-500 basis points cut in lending rates in the near future. "We reminded them that most of the loans were given at rates below the prime lending rates," he said. Most PSU banks have pegged their PLRs, which serve as benchmark rates, between 12% and 12.5% while private banks' PLRs vary from 14% to 16%.
The meeting followed a directive from the government that industry associations and banks should meet regularly to quicken credit flow to the manufacturing sector. The next such meeting will be held after finance minister Pranab Mukherjee meets chiefs of public sector banks.
The FM will meet bank CEOs on June 10 to review the performance of banks. Bankers feel that the minister may ask them to lower lending rates further. Several state-owned banks had cut rates in the first week of April. It's widely perceived that banks would cut rates by 50 bps by mid-June 2009.
In a meeting last week, the Indian Banks' Association (IBA), an association of bank managements, spelt out its views to the Confederation of Indian Industry (CII) and Federation of Indian Chambers of Commerce and Industry (Ficci).
"We have told corporates that lending rates can be cut by 50 to 100 basis points (bps) from the current level in the near to medium term," said a bank CEO, who attended the meeting. Corporates have asked for a 400-500 basis points cut in lending rates in the near future. "We reminded them that most of the loans were given at rates below the prime lending rates," he said. Most PSU banks have pegged their PLRs, which serve as benchmark rates, between 12% and 12.5% while private banks' PLRs vary from 14% to 16%.
The meeting followed a directive from the government that industry associations and banks should meet regularly to quicken credit flow to the manufacturing sector. The next such meeting will be held after finance minister Pranab Mukherjee meets chiefs of public sector banks.
The FM will meet bank CEOs on June 10 to review the performance of banks. Bankers feel that the minister may ask them to lower lending rates further. Several state-owned banks had cut rates in the first week of April. It's widely perceived that banks would cut rates by 50 bps by mid-June 2009.
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