Free up loans, Chidambaram tells bankers
Finance Minister P Chidambaram suggests that bankers should ‘ensure adequate’ credit growth in these sectors, reports Arun Kumar.Updated: Feb 12, 2008 22:14 IST
A softening of housing sector interest rates now appears likely soon with the government expressing concern over the decline in credit growth in the housing and consumer durables sectors. In a review meeting with the chiefs of public sector banks on Tuesday, Finance Minister P. Chidambaram suggested they should ‘ensure adequate’ credit growth in these sectors.
According to bankers who attended the meeting, the government has given them sufficient indication about a reduction in the interest rates, particularly in housing.
“In the given scenario, a fresh round of interest rate cuts by 25-50 basis points is expected shortly,” said a leading banker on condition of anonymity. Some banks and financial institutions such as State Bank of India and HDFC have already reduced the rate by 25 basis points.
The finance minister is learnt to have advised bankers to ensure adequate loans in certain productive areas such as housing. After the meeting, Chidambaram said that there has been a slow down of credit growth. “This slowing down of credit has indeed, to some extent, affected the flow of credit in the housing and consumer durables sectors,” he said.
The finance minister admitted that these areas – housing and consumer durables – had been partly affected by a "conscious" moderation in credit flow in the past year.
He said these issues came in for discussion during his meeting with the bankers, adding that they have been advised to pay attention to the credit needs of home seekers and those who were prospective buyers of consumer durables and non-durables.
"The government does not want this or that, it simply sensitises the banks to the demands of the consuming public. So, the banks have to respond to the situation.
Government does not give them directions or orders. We have sensitised them to the need of the housing sector and consumer durables," Chidambaram said.
Canara Bank Chairman MBN Rao said that there is case for softening interest rates. With ample liquidity in the banking system, the interest rates for home and car loans, besides loans for small and medium sector and consumer goods, would come down,” he said. After the hardening of the interest rate, the banking industry has been faced with a peculiar situation, that of high growth in deposit rates and falls in credit growth.
On a year-on-year basis, deposits grew 29.5 per cent this fiscal till January 25, against 23.5 per cent last year, while advances saw a growth of 22.6 per cent, compared with 29.8 per cent in the same period last year, said Rao.