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Festival season: Govt ask PSU banks to cut rate

Government tries to increase demand for bikes and consumer goods by asking banks to offer cheap loans

October 04, 2013 11:22 IST | India Infoline News Service
The government has asked public sector banks to cut interest rates in order to increase demand for vehicle and consumer durable loans in the festival season.

According to the government, these sectors will revive growth in the economy.

The finance ministry on Thursday, 3 October 2013, said that the government will provide additional amount of capital to state-run banks (PSU banks) to enable them to lend to borrowers in selected sectors such as two wheelers, consumer durables etc, at lower rates in order to stimulate demand.

While this will bring relief to the consumers, especially the middle class, it is also expected to give a boost to capacity addition, employment and production, the finance ministry said in a statement.

This decision is based on the discussions between Dr Raghuram Rajan, Governor, Reserve Bank of India (RBI) and the Union Finance Minister, P Chidambaram.
It is expected that some public sector banks will cut rates by 25 basis points. At present the interest rate is around 10.5% and above for loans to buy two wheelers, flat panel TVs, high-end mobiles and washing machines. The minister will be meeting the chief executives of these banks soon.

Some public sector banks are be expected to slash rates by 25 basis points from the current range of 10.5 per cent and above for loans to buy two wheelers, flat panel TVs, high-end mobiles and washing machines. The minister will be meeting the chiefs of these banks soon, it is understood.

At the end of September 2013, growth of gross bank credit stood at about 18%, year-on-year. However, credit growth is sluggish in some sectors leading to the conclusion that demand in these sectors remains subdued, the finance ministry said. It may be recalled that in the Union Budget for 2013-14, a sum of Rs 14000 crore was provided for capital infusion in PSU banks. This amount will be enhanced sufficiently, the finance ministry said.

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