The government is prodding banks for faster disbursal of retail loans and achieving a 20% growth in the portfolio year-on-year to encourage households to spend more on homes, cars and consumer goods as part of a broader strategy to reverse the slowdown in the economy.
"There is no set target, but banks have to play a major role in pushing economic growth," a government official, who did not wish to be identified, told HT.
The economy is likely headed to record its worst growth in a decade.
Automobile sales growth crawled at 4.6% during April to December 2012 against 11% in the previous year, supporting the view that high inflation and interest rates are hurting discretionary consumer spending.
Last week, the RBI cut the repo rate - the key lending rate at which it gives out funds to banks - by 0.25 percentage points to 7.75%, the first such reduction in nine months.
To tame prices, the RBI resisted the growing demand for cut in interest rates, but it appears to have hurt sales of consumer goods bought on loans.
"My wife and I planned to buy a new car around Diwali last year, but we didn't get a bonus and the raises were low. Besides, the interest rates are high. So, we postponed the decision," said Anuj Anand, a Mumbai-based mid-level executive.
"We are doing everything to ensure that credit picks up and have already seen 20% growth in lending in the current financial year," TM Bhasin, chairman and managing director, Indian Bank, told HT.