Chidambaram in New Delhi on Monday. Picture by Rajesh Kumar

New Delhi, Nov. 3: Finance minister P. Chidambaram will meet public sector bank chiefs tomorrow and evaluate the quality of bank assets. He is concerned about bad loans in capital markets and real estate and wants banks to strictly follow prudential rules while lending to these sectors, said experts.

According to the agenda note for Tuesday’s meeting, the government is concerned about “asset quality in sensitive sectors”.

“The minister may ask PSU bank chiefs to follow up current loans on a timely basis and be cautious of fresh exposure,” said U. S. Bhargava, former general manager of Punjab National Bank.

Real estate companies have been demanding easy credit, but bankers and finance ministry officials favour a selective lending strategy.

Analysts do not see a real estate bubble in India and expect housing prices to fall in some new townships.

The finance minister also wants banks to cut their lending rates, following Saturday’s rate cuts by the Reserve Bank of India.

“The minister has assured us that the government will persuade banks to reduce interest rates,” Assocham president Sajjan Jindal said.

Union Bank cuts rates

The Union Bank of India today cut its benchmark prime lending rate by 50 basis points to 13.5 per cent with immediate effect. The reduction will be applicable to all loans linked to the benchmark rate, including auto, home and corporate loans.

“We have reduced our prime lending rates from today. All loans linked to the prime lending rate will now carry a lower rate,” a senior official from the bank said today.

The official did not elaborate on the revised home loan rates. The public sector bank had earlier brought down interest rates on home loans by up to 50 basis points, but that was a festival offer.