NEW DELHI, 5 January 2008 — Indian Finance Minister P. Chidambaram met chairpersons of banks for the quarterly review meeting yesterday during which he expressed satisfaction with the growth rate of bank credit.
“It is a very satisfactory rate of growth,” Chidambaram said. “Bank credit to different sectors is also growing at a satisfactory rate. For example, credit to the small and medium sector up to September has grown by 18.12 percent.”
In addition to the increase in target fixed for agricultural credit, Chidambaram pointed out: “Every bank has reported that they have improved upon their base of last year. The guideline is they must move from nine percent, for the whole system, to 15 percent over three years.”
The banks are also improving credit to minorities, a policy initiated last year, according to which the Reserve Bank of India has included “minority communities” in the list of “weaker sections” for the purpose of priority-sector lending by banks. Domestic banks, both government-owned and private, are mandated to lend 10 percent of the their total loans to “weaker sections.”
Highlighting the increase in credit to minorities, Chidambaram said: “Every bank has reported that their credit to minorities is moving up as a proportion of total credit. Some have even done 11 percent and some have done 12 percent. But all of them are moving up. There is not one bank, which said that it is not able to improve the credit to minorities.”
Chidambaram expressed hope that banks would cut deposit and lending rates by half a percent to spur investment and consumption so that economy can be sustained on a high growth path. “I would like — I cannot wish this — that banks cut lending and deposit rates by 50 basis points so that it stimulates investment and consumption,” Chidambaram told reporters after the meeting with bankers. This would be decided by each bank, taking into consideration its assets and liabilities, he added.
“Investment and consumption are the drivers of growth and we have asked banks to ensure that credit is not denied to the two sectors,” he said. “I have asked banks to increase lending to investors and consumers of consumer durables, non-consumer durables as there is sluggishness in these two sectors.”
India will open up its $330 billion retail market to foreign investors, after it convinces small-store owners that their livelihood is not at threat from major chains, Chidambaram said. “In course of time their fears will be allayed and it is only a matter of time before the policy is tweaked to allow FDI (foreign direct investment) in retail. Experience tells us (organized) retail does not drive them (small retailers) out. They will reorganize themselves and thrive,” he said.
