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Govt asks banks to lend more to labour intensive sectors

February 02, 2009 18:09 IST

Convinced that rural areas and labour intensive sectors control the trigger button on demand, the government on Monday asked banks to step up lending to small and medium industries and infrastructure to stimulate the economy.

"In view of contracting global demand, we have to focus on domestic demand by primarily stimulating demand in the rural areas and highly labour intensive sectors," External Affairs Minister Pranab Mukherjee, who is holding charge of the finance portfolio, told reporters after meeting heads of PSU banks in New Delhi.

On their part, bankers said they would cut lending rates to fuel consumption.

"We must support the development of those sections which immediately boost growth and throw up employment opportunities," Mukherjee said.

Last week, in its quarterly review of the monetary policy, RBI held policy rates steady while, saying its measures since October gave banks enough scope to cut rates further.

Finance Secretary Arun Ramanathan said as "deposit rates have moderated, there is general expectation that interest rates will come down."

The sectors that specifically sought enhancement of bank credit during the meeting were infrastructure, rural credit, consumer credit and MSME, among others.

Speaking immediately after the meeting, several bankers including the country's largest lender SBI [Get Quote] said that they are considering a cut in lending rates.

Canara Bank [Get Quote] Chairman and Managing Director A C Mahajan said interest rates will go down in all the segments of the loan portfolio. The bank would take a decision on rates within this month, he added.

Mukherjee, according to bankers who attended the meeting, has said if they (banks) decide to dispense credit to four sectors including infrastructure, rural credit, consumer loans and small and medium enterprises at faster pace, the "economy will revive at a much faster rate."

In order to generate demand, the government last month asked public sector banks to enhance the credit target by about Rs 50,000 crore (Rs 500 billion) during the current quarter.

"We have three months more...we have enhanced the original (bank's credit disbursal) plans by Rs 56,000 crore (Rs 560 billion). So, we are planning to provide, in addition to the earlier plans, over Rs 56,000 crore (Rs 560 billion)," Ramanathan had said.

On moderation of rates, Indian Banks' Association Chairman T S Narayanasami said that banks were going to reduce interest rates and the timing of the rate cuts would be decided in the coming days.

"There is thinking (on the lines of cutting rates)," SBI Chairman O P Bhatt said when asked if there is a possibility of reducing the benchmark prime lending rate by the bank.

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