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Bank-FM meet sparks rate-cut hope

New Delhi, June 8: Banks may cut interest rates by 50-75 basis points after a crucial meeting on loans with finance minister Pranab Mukherjee on Wednesday. However, this will be short of industry expectations of a single-digit interest rate.

Currently, the benchmark prime lending rate for a majority of PSU banks is between 12 per cent and 12.25 per cent.

“Lending rates can come down by 50-75 basis points. The larger banks will cut rates just after the meeting with the finance minister and the smaller banks will follow later, but definitely we should see rates coming down before the end of June,” said M. Narendra, executive director of Bank of India.

Finance minister Pranab Mukherjee is meeting the chiefs of public sector banks on June 10 to discuss the interest rate situation and review targets and strategies to boost credit growth.

The country’s top lender, the State Bank of India (SBI), also said there was scope for lending and deposit rates to come down by at least 25 basis points before the end of June.

“There is a fair amount of liquidity in the system. Inflation continues to be less than 1 per cent and while credit growth has not picked up, we are seeing enquiries which mean that there can be credit growth in the next few months with a stable government in place,” said .P. Bhatt, chairman of the SBI.

Since their last meeting with Mukherjee in February — when he was the stand-in finance minister —banks have pared their loan rates by 100-150 basis points and deposit rates even more sharply.

According to Goldman Sachs India economist Tushar Poddar, the policy rates are near an all-time low now, but banks have not fully passed on the low rates to their customers.

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