The government has summoned nine public sector bank chiefs to discuss the liquidity and interest rate scenario and credit flow to seven sectors and for export refinance.
Banking sources said that Cabinet secretary KM Chandrasekhar, who will meet bank chiefs next week, is expected to take up the issue of loans sanctioned to industry, automobiles, housing, small and medium enterprises and non-banking finance companies.
In addition, the finance ministry will present a report on steps taken to step up flow of resources to SMEs, textiles, gems and jewellery and rupee and foreign currency resources to exporters.
Apart from the bank chiefs, two representatives each from the Federation of Indian Chambers of Commerce and Industry and the Confederation of Indian Industry have been called for the meeting to provide an assessment on credit flow.
The government was worried over banks using the additional liquidity of over Rs 4,00,000 crore (Rs 4,000 billion) for investing in government securities and instruments issued by mutual funds instead of using them for lending purposes. In addition, banks have routinely resorted to parking excess liquidity with the Reserve Bank of India through the reverse repo window.
According to latest estimates, it is the private and foreign banks which have been responsible for the fall in credit growth.
While public sector banks have seen credit growth drop from 27.2 during the year up to the end of October to around 26 per cent at the end of February.
In contrast, fearing a rise in defaults, private sector banks have scaled down credit flow in a major way and the growth rate has dropped from 28.5 per cent to 5.3 per cent during the period.
The public sector bank chiefs called for the meeting included State Bank of India [Get Quote] chairman O P Bhatt, Punjab National Bank [Get Quote] chairman and managing director K C Chakrabarty, Canara Bank [Get Quote] CMD A C Mahajan, Bank of India's T S Narayanasami, Bank of Baroda's [Get Quote] M D Mallya, Union Bank of India's [Get Quote] M V Nair, IDBI Bank chairman Yogesh Agarwal, Allahabad Bank [Get Quote] CMD K R Kamath and Indian Overseas Bank's [Get Quote] S A Bhat.