New Delhi, Aug 19 () : Public sector bankers were told by the finance minister to lower interest rates on consumer durables so that it will help domestic demand and in turn bring in investment to the manufacturing sector.
Finance minister P Chidambaram urged that consumers must be encouraged to buy consumer durables and that state-run banks should increase lending for consumer durables to boost the manufacturing sector which has been caught up in the slow spending down of the economy.
FM hoped that the Chairmen of public sector banks have taken the point well.
For the third time in four months, in June industrial output in India, Asia’s third largest economy contracted, dragging down by a deep dip in manufacturing. The economy faces its worst slowdown in almost a decade.
Manufacturing shrank by an annual 3.2 percent in June from a year earlier and it constitutes about 76 percent of industrial production. Chidambaram advised the banks to concentrate on sectors which deserve credit and which are in dire need for credit. Chidambaram said in the present scenario it is important that consumption of durables is supported to a great extent.
Government-owned bankers account for 70 percent of the debt market in India but their decisions are not always driven by commercial considerations.
With bad loans, banks have either maintained status quo or reduced their base lending rates despite a steeper-than-expected 50 basis point repo rate cut in April.
Chidambaram has promised to revive the economic growth by taking measures in collaboration with RBI, the central bank. This is his third stint as finance minister which began on July 31. The finance minister advised banks as a first step to lower interest rates on consumer durables so that will help domestic demand and investment in the manufacturing sector.
India’s biggest lender, State Bank of India, CMD Pratip Chaudhuri confirmed that FM advised the banks to consider reducing interest rates for consumer durables. Chaudhuri said SBI had already reduced interest rates on some consumer durables from 11.75 percent to 10.75 percent.