PSBs asked not to hike home loan rates

Finance Minister meets the head honchos of state-run banks to ensure credit flow to productive sectors after the central bank raised the repo rate last week by 25 basis points to 7.5%

Feb 05, 2007: Less than a week after the Reserve Bank of India (RBI) raised short-term rates to curb spiraling credit growth, Finance Minister P. Chidambaram on Monday called upon all public sector banks not to hike home loan rates and to rebalance their loan portfolios to moderate credit growth to some sectors.

"I have asked the banks to hold interest rate on home loans at the current rate," he told reporters after a meeting to review quarterly performance of public sector banks. "I am glad all public sector banks have agreed to hold interest rate on home loans at the current rate," he said.

Chidambaram met the head honchos of state-run banks to ensure credit flow to productive sectors like infrastructure after the central bank raised the red flag last week by hiking the provisioning requirement for credit cards, loans against shares, commercial real estate and borrowings from NBFCs.

He said that bank advances have grown by 22.5% during the third quarter this fiscal on year-on-year basis, and credit by 30.2%. The non-food bank credit has grown by 31.2%, while lending to small and medium enterprises posted a growth of 28.4%.
Referring to bank credit to the agriculture sector, the Finance Minister said that the Government was confident to cross the target of Rs1.75 trillion lending to farm sector in the current fiscal year.

The bank credit to agriculture, he said, increased by 28.4% during the third quarter and Rs1.49 trillion were outstanding.
On education loans, Chidambaram said that banks have been asked to bring down the difference in interest rates. Education loans increased to Rs123.37bn, posting a growth of 31%, he said.

Allaying fears of high rate of default among home loan customers, the Finance Minister said banks have reported around 99% recovery in home loans. He said that only a few fraudulent borrowers in home loan segment were causing an increase in non-performing assets (NPA).

Banks have also reported an increase in NPA in the credit cards segment, Chidambaram said, adding that after the new provisions this is likely to moderate.
Public sector banks have also assured the Government that they would bring down NPA below 1.32% of total advances, the Finance Minister said. They (banks) have ample liquidity and some progress has been made in rebalancing their portfolio as well, he added.

The Government has also taken up the issue of money laundering and annual information returns on Bank Cash Transaction Tax, as there have been delay by some banks, Chidambaram said.

Source: Indiainfoline