The banks have been advised to reduce their lending rates by squeezing their spreads -- the difference between the lending and deposit rates.

According to the Survey, the banking sector needs to "review the spreads suitably, thereby ensuring that credit offtake by the productive sectors is maintained, facilitating the growth momentum of the economy."

Expressing concern over deceleration in credit expansion, the Survey said, "It is necessary that credit expansion is non-inflationary and the productive sectors receive adequate credit at reasonable cost."

The concerns raised by the Survey on banking sector credit assume significance in the backdrop of declining credit-deposit ratio, which dipped from 74 per cent as on March 31, 2007 to 71.8 per cent as on January 4, 2008.

The Survey also warned that any further deceleration in credit provided by banks "would have a detrimental impact on the overall economic growth."

Economic Survey 2007-08: Complete Coverage