Keep EMIs affordable, cut interest rates: PC
P Chidambaram also directed the banks to double the number of ATMs from 63,000 in two years.
New Delhi: In a bid to revive investment across the board, Finance Minister P Chidambaram on Saturday asked banks to cut interest rates and keep EMIs at affordable levels to encourage sale of consumer durables that will restart the engine of manufacturing.
After a review meeting with the chiefs of public sector banks against the backdrop of slowdown in the economy, he also announced rescheduling of farm loans in drought affected states and revision in procedures for easy sanction of education loans to students.
Maintaining that health of the banking sector is extremely good, Chidambaram directed the banks to double the number of ATMs from 63,000 in two years and also to make them cash accepting machines so that the money remains in the banking system.
"Most of our problems will be over if we revive investment. Investment must be revived across the board small, medium and large industries. Sentiment is only one factor. Sentiment will change if the other issues are addressed.
He said the bank chairmen have been candid and they have identified a number of issues such as fuel supply agreement, delay in clearances and approvals, land acquisition and government entities like NHAI and SEBs not making payment in time. A certain amount of choking in supply of credit.
"These are issues which have been identified as inhibiting. I will take up the issues with ministries concerned. Once we get the investment cycle going, once we get the investment engine started many of our problems can be solved. We have asked the banks to focus on sectors that deserve credit," the minister said.
Asserting that the EMIs should be kept at affordable levels, Chidambaram said, "the middle class is complaining about increasing EMIs and stretching payment cycle. The middle class, which consumes consumer durables postponing purchases, and that is not good for the industry".
He said just as investment plans must be brought forward, consumers must be encouraged to buy consumer durables that will keep the engine of manufacturing.
"EMI must be kept at affordable level so that people will buy two wheelers, cars, refrigerators, washing machines, cooking ranges, mixies and grinders.
"That will keep the engine of manufacturing going and large industries continue to produce these goods. The suppliers of parts and accessories in the small and medium enterprises will continue to do business." he said.
Chidambaram cited the example given by the State Bank chairman that cars sales picked momentum after reduction of EMIs. SBI was selling 400 cars per day when the EMI was Rs 1,766 per lakh per month for seven years loan. The sales jumped to 700 cars per day, when the EMI was brought down to Rs 1,725. It shot up further to 1,200 cars, once the EMI was further reduced to Rs 1,699.
"I have urged the other banks to look at SBI example", the Minister said, adding "the point is well taken." Chidambaram said Rs 11 lakh crore in cash remains with the people and it must come into the banking system. This could be done by increasing the number of ATMs, he added.
ATMs, he added, should also become cash accepting machines to allow people to deposit and withdraw cash at any time.
The Finance Minister further said that Indian Banks Association (IBA) would soon come out with a campaign to encourage e-transaction.
On problems in the housing sector, Chidambaram said he had asked the IBA to set up a small group to look into the vexed issues which include high demand, vacant flats and unfinished buildings.
According to reports, he added, 5 lakh flats were lying vacant in Mumbai despite high demand for housing.
On the impact of deficient monsoon and likelihood of drought, Chidambaram said banks are fully geared up to deal with the situation.
Credit, he added, would be provided to farmers to ensure that an alternate crop could be sown in October to mitigate the impact of shortage of rainfall.
Banking loans to agriculture in the current fiscal would be around Rs 6 lakh crore, more than the target of Rs 5.75 lakh crore, he said, adding banks have already issued 11.5 crore Kisan Credit Cards (KCC) which would benefit the farming sector.
He further said about 60 per cent of loans is provided to farmers at 4 per cent, three per cent less than the regular rate of 7 per cent. The farmers, he added, were repaying the loans and there are no concerns of NPAs.
With regard to loans to corporates and SME sector, Chidambaram said although NPAs have gone up in March 2012 to 3.17 per cent, there is no cause for "alarm".
The Minister hoped that situation would improve with the economy coming back on rails.
Referring to education loans, Chidambaram said the IBA in the next few days would soon come out with a revised circular to ensure that no child, who fulfils prescribed parameters, is denied loan.
"Education loan is right of every student", he said, adding action would be taken against those bank officers who deny loans to deserving students.
On Corporate Debt Restructuring (CDR), Chidambaram said it was for the Reserve Bank to take a call on the issue as the Ministry does not interfere in the CDR.
The Minister further said PSU banks are working to increase reach of banking in 121 districts with concentration of minority population. These banks had opened 1,098 new branches in these districts in 2011-12 and more would be done in the current fiscal.
Recommended For You
- West Bengal Tourism Ad Featuring SRK Is Winning the Internet With Its Sweetness
- Australian Open 2017: Rafael Nadal Fights Off Gael Monfils to Reach Quarters
- Did Ranveer Singh Just Give a Glimpse of His Look from Padmavati?
- Yamaha R15 v3.0 Revealed, India Launch Likely Later This Year
- Amazon Great Indian Sale Day 3: Deals on Moto X Force, Bose QuietComfort 25 And More