Banks, FIs May Cut Interest Rates Further
Domestic cash-strapped companies may soon find it easier to access credit, as banks and financial institutions (FIs) are planning to slash interest rates further in the next 2-3 months, if there is no significant improvement in the economic scenario.
Several banks and FIs such as the State Bank of India (SBI), Punjab National Bank (PNB), Industrial Development Bank of India (IDBI) and Life Insurance Corporation (LIC) Housing Finance have recently reduced interest rates on home loans and auto loans as special offers for the upcoming festive season. Industry experts believe that the lowering of interest rates could boost demand in the real estate and automobile sectors in the coming days.
'Car sales were up by a healthy 31% in July 2009. With some banks bringing down their interest rates on auto loans, sale of vehicles could increase further. This would consequently help small-scale auto dealers like us,' said M Vora, Proprietor of Kunal Auto Services, Mumbai.
SMEs need cut in PLRs
For small and mid-sized companies, cut in prime lending rates (PLRs) by banks hold more importance than that on any other interest rates. Although many banks have trimmed their PLRs in recent months, they have not gone about it aggressively. However, if the economic recovery does not pick up pace soon, banks may look at decreasing lending rates further.
'Weak monsoon coupled with turbulent global market scenario are turning out as major impediments in the path of economic recovery. This is affecting all businesses, especially small entities like ours. Under such circumstances, we are in need of loans from banks and FIs to sustain our business. If banks cut PLRs, borrowers like us would find it easier to seek loans,' said V Daga, Manager at Uttam Electric and Trading Company, a small-sized electric goods manufacturer and supplier in Kolkata.
Incidentally, banks' credit offtake has almost halved in the first 4 months of the current financial year as the high interest rates have discouraged several small entrepreneurs from borrowing. To boost credit offtake, banks may have to lower their lending rates soon.
