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Saturday, September 21, 2013

PSU bank chiefs defy Finance Minister diktat, hike rates

In a rare display of spunk, some chiefs of public sector banks are standing up to their bosses in the North Block, even differing with them on rate cut, something you wouldn't have heard of in the past.

At least two bankers have, in recent months, raised interest rates despite veiled — and at times, explicit instructions — from New Delhi to not do so. What's even more interesting is that these bank chiefs are close to their retirement.

For instance, State Bank of India chairman Pratip Chaudhuri raised lending rates — a token hike of 10 basis points to 9.80% — on Thursday, a day before Reserve Bank of India governor Raghuram Rajan announced his maiden policy review. Chaudhuri is set to retire at the end of this month. Similarly, BA Prabhakar, former CMD of Andhra Bank, raised rates just a fortnight before he retired in August.

"Those who are not looking for any post-retirement benefits from the government will behave in an independent manner just before they retire," said Hemindra Hazari, head of equity research at Nirmal Bang Institutional Equities. This also underscores the fact that some bankers have taken bold steps to protect their organisation as they near retirement, unlike in the past when they simply toed the line of their bosses.

On July 3, in a closed-door meeting with chief executives of public sector banks, finance minister P Chidambaram had asked them to cut rates to send out a positive signal to the economy. "Someone will have to take a bold move or things will not improve. But if banks lower rates, even if it is a token rate cut, it will send a strong message," the FM had said, according to bankers present in the meeting. Several PSU banks such as Canara Bank, Bank of India, Andhra Bank and Union Bank of India followed his advice.

But, on July 14, the RBI surprised the market by tightening liquidity and raising the cost of funds, drawing a sharp response from the North Block, and putting these banks in a spot of bother.

Prabhakar, who retired from Andhra Bank in August, said raising rates was absolutely imperative. "Anyway, I was to retire in the next few days. I thought my executive directors would not be able to take a bold step since they were only holding charge in the absence of a new CMD. Also, they would hesitate to do so because of constant counselling from the government against raising rates," he told ET.

Source: EconomicTimes


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