Public
sector bank boards have stuck to their ground, and have
not rolled back their rate hikes. Most PSU banks say that
they will concentrate on lending below the prime lending
rate to protect their margins, reports CNBC-TV18.
The
boards of three PSU banks Bank of Baroda, Oriental
Bank of Commerce and Andhra Bank met in deference to the
finance ministry's insistence but quite unexpectedly did
not roll back the rate hikes announced by these banks
last week.
"These
letters were deliberated in great detail and we came to
the conclusion that the rates will continue," said
K Ramakrishnan, CMD, Andhra Bank. Oriental Bank of Commerce
rolled back the increase in home loan rates below Rs20
lakhs, but retained the hike for loans above that amount.
What
makes these board ratifications noteworthy is the circumstances
under which the boards met. On July 25 the RBI signaled
higher rates, by raising the repo rates. On July 28, the
finance ministry sent a note to all PSU banks asking them
to focus on economic growth and hinting that a need to
reprice loans to productive sectors may not be necessary.
Come
August 1, five major PSU banks nevertheless announced
rate hikes. This drew a second stern note from the ministry
of finance to all banks chiding them for not giving due
weightage to the letter of July 28 and asking them to
place the letter and the hikes before their boards once
again for reconsideration.
There
was speculation that that the government nominees would
steamroll their majority and roll back the rate hike decision,
thus making a mockery of commercial banking and of the
RBI's effort to cool the economy.
Surprisingly,
however, the boards have chosen to stay with the rate
increase decision. Yet, Bank of Baroda's press release
clarifies, "The board reiterated its resolve to channel
more credit into productive sectors and away from segments
like realty."
All
eyes are now on the State Bank of India, in which the
Reserve Bank of India is the majority shareholder, which
too has implemented its 0.25 per cent PLR hike. Its board
is only scheduled to meet on August 24 to reconsider the
rate hike, but now the odds are that SBI, too, would follow
the example of its peers.
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