The Reserve Bank of India ( RBI) has cut repo rates, the rate at which it lends money to banks, by 75 basis points since January this year, but most banks have not lowered lending rates.
"We have advised the banks to look at the base rate," Chidambaram told reporters after meeting the heads of state-run banks. "In my view, reduction of the base rate will be a powerful booster, will be a powerful stimulus to the credit growth."
India's economy grew at a decade low of 5% in the last fiscal year ending March.
Each bank was free to take its own decision, Chidambaram stressed. State-run banks, which operate with a considerable degree of autonomy from the finance ministry, account for 75% of bank loans.
Banks have been worried that a sharp cut in lending rates could affect their profit margins in the absence of strong domestic demand and impact on bank deposits. The average base lending rate of Indian banks is around 10%.
Chidambaram said the heads of the state banks had assured him during Wednesday's meeting that they would review their base lending rates by the month end.
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- Unknown Updated at: Wednesday, July 03, 2013
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