RBI should also increase the bank guarantee limit for importers and allow banks to lend to individuals and companies for investing in shares of public sector units which are likely to be disinvested in near future, the Associated Chamber of Commerce and Industry (Assocham) said in a note to RBI.

The chamber has stressed on reducing overall CRR limit from 11 per cent to 9.5 per cent, with additional motivation to banks to meet large funding requirements of infrastructure projects.

``Infrastructure funding is a risky proposition since it locks up bank funds for long periods but banks have to go in for long term financing in line with the global trend towards universal banking,'' Assocham president L Lakshman said in a statement today.

In an effort to bring down lending rates, Assocham hascalled for reducing bank rate. ``It is important that interest rates are controlled by decrease in bank rate,'' Lakshman added.

He also said credit policy should be designed to encourage banks to lend for mergers and acquisitions. "This could improve the competitive strength of sub-optimal sized corporations in the domestic world markets. Assocham note said banks were not prompt in passing the benefits of low interest rate even if RBI effected cuts in bank rate, CRR and statutory liquidity ratio (SLR).

``Whenever Prime Lending Rate (PLR) is reduced by the bank the full impact of the reduction in PLR is not being passed on to different categories of borrowers,'' Lakshman said.

The chamber chief said banking sector has to economise their expenditure and bring down the interest cost to benefit the Indian industry.

PLR should be fixed at a maximum of two to three per cent over the bank rate and the spread over PLR restricted to two per cent, the statement added.At present, banks charge between three tofour per cent spread to small and middle class borrowers, which is a heavy burden on them. They also charge penal interest at one to two per cent, which increased the cost of borrowing.

Regarding external trade, Assocham has suggested bank guarantee amount for advance for imports be increased from $15,000 to $1 lakh . Advance for imports needs to be supported by a bank guarantee from an international bank.Assocham said existing limit was very small and needed to be increased as very often supplier was reluctant to give bank guarantee and to convince such suppliers took very long time.