The government pushes banks to reduce rates in the battle for the slowdown

NEW DELHI: The government on Monday urged banks to accelerate rate cuts, while seeking to include loans for cars and homes under the 59-minute scheme to accelerate authorizations and improve the flow of loans to the two sectors in the drip of a sharp slowdown

The government said banks have pledged to increase credit support for the purchase of vehicles, which will help reduce the massive accumulation of stocks with companies and dealers.

The sources told TOI that the scope of the 59-minute loan scheme is being expanded to increase coverage from Rs 1 crore to Rs 5 crore, as the government is interested in the economy having abundant access to loans for activities.

Citing RBI's decision to reduce policy rates by 75 basis points and the abundant liquidity in the system, the government advocated a faster transfer of the benefit to borrowers. At the meeting, the banks agreed to take action according to RBI guidelines to review interest rates, to finance ministry said in a statement. The government’s push comes exactly a fortnight after RBI governor made a case for faster transmission of rates and coincides with the Monetary Policy Committee meeting, which kicked off on Monday. The panel headed by RBI governor Shaktikanta Das it is widely expected to go for a new 25 base point reduction.

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While banks cited the rigidity in the transmission of rates to the nature of their deposits, with the current and savings bank representing almost 40% of the pie, officials suggested there was room to move faster, sources told TOI . They also suggested that banks could take advantage of the OSE experience since the country's largest lender had moved faster.

We have introduced a redesigned product for working capital and home loans for faster monetary transmission, we are the only ones we have done so far OSE chairman Rajneesh Kumar told TOI. A specific working capital product for MSMEs is also being considered. Although to finance minister Niramala Sitharaman said liquidity is one of the factors in determining loan flow, the government is hoping that lower rates will encourage businesses to borrow and also meet the funding requirements. Bankers, however, are being cautious amid piling bad debt, with RBI ordering them to go slow on fresh lending.

The to finance ministry, however, believes that there has been a turnaround in the NPA cycle and with healthier balance sheets, banks are in a position to step up lending. Currently, overall credit growth, estimated at 12%, is marginally lower than the March-end figure of 13.3%. With NBFCs under pressure, banks have been advised to leverage co-origination with NBFCs.

This will combine the advantages of lower cost of funds and a large financing capacity of the banks with the reach of the NBFC sector door, to benefit both, an official statement said.

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