FM asks banks to focus on home owners, consumers

After the Reserve Bank of India's (RBI) moral suasion to public sector banks on cutting interest rates, the Finance Minister P. Chidambaram insisted the public sector banks to cater to the requirement of credit to home owners and buyers of consumer goods.

In his meeting with the chiefs of the public sector banks finance minister asked state-run banks to ensure that productive sectors of the economy are not starved of credit.

After a meeting with the Chief Executives of Public Sector Banks in Delhi the Finance minister told the reporters that productive sectors have not been starved of credit and banks have fulfilled their mandate in this area. He said, over the next few days, banks will pay attention to the credit growth and delivery. He also asked the banks to implement sugar package in the next 10 days and submit reports.

Meanwhile, amidst ongoing rate cuts, bankers on Tuesday said they expect a further fall in interest rates due to ample liquidity in the banking system.

Some banks have already reduced interest rates. State Bank of India (SBI), India's biggest commercial bank by assets, reduced its benchmark prime lending rate by 25 basis points to 12.5%.

Private sector housing finance major HDFC and public sector banks such as Canara Bank and Allahabad Bank have also cut rates on retail and consumer loans. Last month Chidambaram had asked banks to lower rates to revive slowing loan growth.

"With ample liquidity in the banking system, pressure on rates has eased," said M. B. N. Rao, Chairman of Canara Bank. With the revision in prime lending rate (PLR), the interest rates on home and car loans, in addition to loans for small and medium enterprises and consumer goods, will also fall.

Speaking to reporters in New Delhi today Rao said that the banking industry is facing a peculiar situation - high growth in deposit rates and decline in credit growth. On a Year on Year basis, deposits grew by 29.5% till Jan. 25 as against 23.5% last year. At the same, advances grew by 22.6% compared to 29.8%.