At a review meeting with top officials of state-run banks, Finance Minister P Chidambaram urged them to cut base rates in order to spur credit growth in the economy.
Chidambaram feels that reduction of the base rate will be a powerful booster to credit growth and this may in turn turn around the economy, which grew at a decade-low pace of 5 percent in 2012-13.
The minister argues that while Reserve Bank of India trimmed policy rates by 125 basis points, banks must pass on at least some part of it to customers.
After the meeting, Bank of India reduced its base rate by 25 basis points to 10 percent. Some more state-run banks are expected to reduce base rate following the suggestion by the minister.
However, State Bank of India (SBI), whose base rate is 9.7 percent, may not reduce the rate as it is already at the lower side.
Chidambaram said the bank chiefs had assured him that they would review their base rates by the end of July and take decision on cutting them.
During the meeting, banks said higher provisioning norms and increase in cost of funds discourage them from reducing base rate.
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