Pranab to push banks on rate cut, infra credit

Finance Minister Pranab Mukherjee is due to meet chiefs of public sector banks on Wednesday in a bid to break a deadlock over interest rates to help revive demand and growth in the economy, reports Mahua Venkatesh.

Finance Minister Pranab Mukherjee is due to meet chiefs of public sector banks on Wednesday in a bid to break a deadlock over interest rates to help revive demand and growth in the economy.

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The meeting is also expected to discuss the prospect of loans that fail to yield interest.

Many companies are rescheduling loans, which the government fears could spoil the balance sheets of banks after a few months.

Mukherjee and his team of officials would brainstorm with the senior bankers on a host of issues including ways and means to enhance lending to the credit-starved infrastructure sector.

The agenda paper circulated to bankers specified that the finance minister would review the lending rates offered by public sector banks in recent months. “It is felt in some quarters that successive cuts in the policy rates and reduction in the statutory liquidity ratio (SLR) requirement do not appear to have been adequately reflected in the reduction in benchmark prime lending rates,” the agenda paper said.

“In view of the contraction in global demand, public sector banks to have to focus on primarily stimulating demand in rural areas and highly labour-intensive sectors,” the agenda paper said.

The rising hesitation of banks to lend to infrastructure projects have rung alarm bells in the government as several critical current and planned projects could get delayed by several months for want of funds.

Data collated by the Finance Ministry reveal that banks are charging interest rates above 15 per cent for infrastructure projects.

The Rs 10,000 crore refinance window opened for new projects through the India Infrastructure Finance Company Limited (IIFCL) as part of the stimulus package in December 2008, is mostly lying unused as not many new projects in the last four months have reached financial closure.

India Inc, caught between a credit squeeze and low demand, has sought lowering of interest rates to keep planned projects going.

“There is a need to make the interest rate environment more conducive for investment growth,” the Confederation of Indian Industry (CII) said in its pre-budget recommendations to the government.

The country’s exports sector have bore the brunt of the world economy’s recessionary conditions with exports contracting for seven successive months due to shrinking world demand.