National

Chidambaram to banks: lend more for housing and consumer durables

— Photo: V.V. Krishnan

Finance Minister P. Chidambaram , accompanied by M.B.N. Rao, CMD, Canara Bank (left), and H.N. Sinor, chief executive, Indian Banks’ Association, arrive for a meeting of the chief executives of public sector banks in New Delhi on Tuesday.

NEW DELHI: Conceding that there was a slowdown in demand for housing and consumer durables, Finance Minister P. Chidambaram on Tuesday asked public sector banks to ensure adequate funds to these sectors.

“Consciously, over a period of a year, there has been a slowing down of credit growth...” The slowing down of credit “has indeed, to some extent, affected flow of credit to the housing sector and consumer durables sector,” he told newspersons after a meeting with the chiefs of public sector banks here.

The bank chiefs were advised to meet the credit needs of home seekers as also buyers of consumer durables and non-durables. Some banks were already in the process of doing so, he said.

Asked whether availability of easy credit would also mean a further cut in interest rates, Mr. Chidambaram said: “You ask bankers. All I said is there is a feeling that adequate credit is not flowing to these sectors for one reason or another. So you must pay attention to these sectors because these sectors are drivers of economic growth also… [The] Government does not give them directions or orders. We have sensitised them to the need of the housing sector and consumer durables [sector].”

While a number of leading banks have already announced reduced lending rates, the bankers noted that they expected a further cut in interest rates owing to ample liquidity in the system.

“With ample liquidity in the banking system, pressure on rates has eased,” Indian Banks’ Association Chairman M.B.N. Rao said on the sidelines of the meeting.

The Minister’s advice to the bank chiefs appears to have come well in time as the industrial growth data released on Tuesday revealed a negative growth of 1.3 per cent in the production of consumer durables during the first nine months of the current fiscal compared to a robust 11.2 per cent growth in the same period a year ago. The growth in consumer non-durables also declined from 9.5 to 8.4 per cent over the same period.

Overall, the non-food credit extended by commercial banks went up by 11.8 per cent up to January 4 this fiscal, compared to a rise of 17.5 per cent in the same period in 2006-07.

Commenting on the monetary tightening by the Reserve Bank of India, Mr. Chidambaram said: “It is a conscious slowing down [of credit growth], but if it slows down too much, it will affect economic growth. Therefore, we have asked them [public sector banks] to look at credit delivery to sectors like housing and consumer durables.”

As consumption drove production and production drove investment, one must ensure that there was adequate growth in consumption as well, he pointed out.

© Copyright 2000 - 2009 The Hindu