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Cut interest rates, boost economy: FM to banks

Finance Minister Pranab Mukherjee on Wednesday 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 of India is not 'adequately (getting) reflected in the reduction of BPLR (benchmark prime lending rates) of banks'.

Cut interest rates to boost economy: FM to banks

Besides the officials of the finance ministry, the meeting is being attended by heads of major banks and financial institutions including State Bank of India chairman O P Bhatt, Punjab National Bank chief K C Chakrabarty, and India Infrastructure Finance Company chairman SS Kohli.

Between September 2008 and April 2009, Mukherjee said, the RBI reduced key policy rates and also lowered the Cash Reserve Ratio and Statutory Liquidity Ratio, the funds banks are required to park with the apex bank and keep in government securities, respectively.

Cut interest rates to boost economy: FM to banks

Besides, the RBI also opened special liquidity window for mutual funds and non-banking financial companies and relaxed the lending norms.

However, steps taken by the 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," the finance minister said.

Cut interest rates to boost economy: FM to banks

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."