Govt has asked PSBs to seek Board approval on interest hikes: FM

New Delhi, Aug 4 (UNI) Finance Minister P Chidambaram today said the government has asked Public Sector Banks to take prior approval of their Boards of Directors before effecting any hike in interest rates and justified this by saying that government was a majority shareholder in these Banks.

"It is necesssary for the Banks to consult their Boards before revising lending rates as there are a number of aspects that need to be looked into after the Central Bank raised its benchmark rate last month," Mr Chidambaram told Reporters here.

''All that we have done is advise banks to place before their boards any decision on (lending) rates. Government is a majority shareholder and there is a government nominee on the boards of the Public Sector Banks. What is wrong in this?'' Mr Chidambaram said.

The Finance Ministry has been concerned over the decision of the Bank's to raise interest rates, following the hardening of interest rates after the decision fo the RBI to raise repo rate and reverse repo rate twice consecutively totalling 50 bps.

"Yes we have advised the Banks that a decision on rate increase has to be taken by the respective Boards," Mr Chidambaram said.

The Finance Minister, however, said that it was up to the Banks to decide on interest rates and the government would only give its views.

There is a view among some analysts that the government was trying to extend its control to various sectors-- sugar, cement, fuel and now interest rates.

The reason they attribute the government's interference with the Banks is that interest rate increases have become a political hot potato with hike in interest rates for corporate lending, home loans and retail loans. The government has been facing scathing criticism over the issue of price rise.

In a sweeping display of authority, the Finance Ministry in a recent written communication asked Banks not to rush through hike in the interest rate on all loans, including the fiercely growing home loans.

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