FINANCE MINISTER P. CHIDAMBARAM RECEIVES A BOUQUET FROM CANARA BANK CHIEF M.B.N. RAO IN NEW DELHI ON TUESDAY. PAWAN KUMAR BANSAL (RIGHT), THE MINISTER OF STATE FOR FINANCE, IS ALSO SEEN IN THE PICTURE. (PTI)

New Delhi, Feb. 12: Finance minister P. Chidambaram today asked public sector banks to lend more to buyers of homes and consumer durables at affordable rates of interest.

This will help to overcome the negative impact on the economy caused by a slowdown in credit growth.

“There is a feeling that adequate credit is not being provided to housing and consumer durables,” Chidambaram said after a pre-budget meeting with public sector bank chiefs.

“Banks have been asked to pay attention to provide adequate credit to these two sectors as they are the drivers of the economy.”

Credit growth had been sluggish in the past few months as high interest rates had forced consumers to delay purchases of homes and curb expenditure on consumer items such as automobiles and washing machines.

Housing loan growth has declined to 20 per cent in April-November 2007 from 35 per cent in the same period of the previous year.

In consumer durables, loan growth has declined to 4.4 per cent during the period under review from 11.2 per cent in the year-ago period.

The Reserve Bank of India had raised benchmark rates nine times since October 2004 to make loans more expensive.

However, Chidambaram said the slowdown in credit growth had not affected the flow of advances to productive sectors, enabling public sector banks to be on course to meet their fiscal targets.

The finance minister said banks themselves would have to decide on interest rates.

“The government has sensitised banks to the demand of the consuming public,” he said.

While some banks, including the State Bank of India and Canara Bank, have already responded by cutting benchmark prime lending rates, others are likely to cut rates soon.

“With ample liquidity in the banking system, the pressure on rates has eased,” M.B.N Rao, chairman and managing director of Canara Bank, told reporters after the meeting with Chidambaram.

IDBI chairman and managing director Yogesh Aggarwal said, “The asset-liability committee of the bank will be meeting next week to deliberate on a rate cut.”

“We will have to keep interest rates in line with the market,” he added.

Rao said the banking industry was facing a peculiar situation — high growth in deposit rates along with a fall in credit growth

On a year-on-year basis, deposits grew 29.5 per cent this fiscal till January 25, against 23.5 per cent last year.

At the same time, advances witnessed growth of 22.6 per cent compared with 29.8 per cent in the previous year, Rao said.