FM advised public sector banks not to raise home loan rates in chief’s meet

Finance Minister P Chidambaram in a meet of chiefs of public sector banks has advised the public sector banks not to increase interest rates for home loans up to Rs 30 lakh and lend more to consumer’s even as the Reserve Bank of India is trying to moderate credit growth to contain inflation.

After the meet Chidambaram told the reporters, “(Responding to the monetary policy) Public sector banks have increased their benchmark prime lending rates by 75-100 basis points. Banks have said almost unanimously that it will not impact existing home loans up to Rs 30 lakh, auto loans and education loans”. According to sources banks have been advised by the minister not to raise interest rates for new home loans up to Rs 30 lakh also.

Sources added Chidambaram also requested the banks’ chiefs to increase disbursement of auto loans as well as personal loans by keeping interest rates affordable.

Taking indications from the North Block, most of the banks already have not touch interest rates in the above categories. Some banks such as the Punjab National Bank, which has raised interest rates for existing borrowers in these categories, but has given the assurance that they will re consider these portfolios.

After taking opinion from banks, Chidamabram said credit growth will be rapid this year. He indicated that advances are likely to grow by over 20 per cent, while deposits can be more than 17 per cent.

RBI has hooked the credit growth at 20 per cent and the deposit growth at 17 per cent for the banking sector in 2008-09. “Deposits are growing at a satisfactory rate compared to last year. Advances are higher compared to the last year (in the first quarter),” Chidambaram said.

Most banks have expressed that they are not witnessing any slowdown in credit demand. But, there has been no growth in farm credit due to the relief scheme.