Finance Minister Pranab Mukherjee today asked banks to cut interest rates and provide cheap credit to industry in order to spur economic activity.
"As a financial intermediary the banks have to stand by to provide credit at reasonable rates," Mukherjee said addressing the chief executives of public sector banks.
The Minister said reduction in key rates by the Reserve Bank is not "adequately (getting) reflected in the reduction of BPLR (benchmark prime lending rates) of banks".
Besides the officials of the finance ministry, the meeting is being attended by heads of major banks and financial institutions including SBI Chairman O P Bhatt, PNB chief K C Chakrabarty and IIFCL Chairman SS Kohli.
Between September 2008 and April 2009, Mukherjee said, RBI reduced key policy rates and also lowered the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR), the funds banks are required to park with the apex bank and keep in government securities, respectively.
Besides, RBI also opened special liquidity window for mutual funds and non-banking financial companies and relaxed the lending norms.
However, steps taken by RBI did not result in commensurate reduction in lending rates by banks, he regretted.
"I would urge the banks to address these concerns (cost and availability of credit) expeditiously and in adequate measure," he said.
These initiatives, the Minister hoped, "will help restore the environment for rapid growth and ensure that the growth process benefits our people."
Noting that cost and availability of credit are areas of concern within and outside the government, Mukherjee said, "Our role is to provide an enabling environment for the business to flourish by way of various pro-growth policy announcements."
Various measures taken by RBI and the government would facilitate the turnaround of the economy soon, Mukherjee said.
"The stock market also seems to be quite bullish. Prime Lending Rates of banks have come down ... I hope that the impact of various pro-growth measures would help to turnaround the economy soon," the Minister said.
Referring to the growth prospects, Prime Minister Manmohan Singh yesterday said in Parliament, "We will maintain at least 7 per cent growth rate. In short run, we cannot do better, but this is not good enough."
India's economic growth rate slipped from 9 per cent to 6.7 per cent in 2008-09 on account of the impact of the global financial meltdown on the country.
On recapitalisation of public sector banks, Mukherjee said that the government would pump in funds to help them achieve capital adequacy ratio of 12 per cent.
"The government will ensure that credit growth of the public sector banks will not suffer for want of capital."
As regards the merger of state-owned banks, he said, "The initiatives for consolidation in the banking sector have to come from the management of banks themselves and government would only play a supportive role as a common shareholder."
To make the growth more inclusive, the Minister asked the banks to increase the reach of banking by vigorously pursuing branchless banking initiatives.
