Finance minister P Chidambaram on Wednesday asked government-owned banks to reduce their base rates, which in turn would help ease lending rates and boost credit growth.
Base rate is the rate below which banks cannot lend.
"I have impressed upon banks the need to cut base rates... a reduction in base rate will be a powerful stimulus to credit growth," he said after a three-hour long meeting with chiefs of public sector banks.
While State Bank of India (SBI) said it would be difficult to further reduce its minimum lending rate or base rate, Bank of India announced a 0.25 percentage point cut in its base rate to bring it down to 10%.
Others banks are likely to follow suit.
Several sectors including agriculture, small and medium enterprises, residential real estate, retail, and roads have witnessed a pick-up in credit demand, said Chidambaram, adding, the picture would be clearer by the end of the second quarter.
Chidambaram has also asked banks to focus on top defaulters and take action against the willful ones.
The top 30 non-performing accounts contribute for bulk of the non-performing asset level, which has seen a steady increase for the last few months, he added.
The minister said that the government owned banks would add 10,000 more branches, 2000 of which will be regional rural ones, in the current fiscal year generating 50,000 jobs.