The Survey holds high interest rates responsible to a large extent for the ongoing industrial slowdown. ``The need to bring down interest rates poses a serious challenge to the conduct of fiscal and monetary policy,'' the Survey states.

Lower cost of money from public sector banks may not be possible without bringing down their cost of intermediation, the Survey warns. As timely availability of credit is important, the Survey states that non-banking financial companies (NBFCs) are well placed to ``channel financial savings to productive sectors of the economy''. It adds that the changes in the regulatory framework of NBFCs is designed to make them more effective as credit delivery vehicles.

The Survey expresses concern at the poor demand for non-food credit. During the current financial year, non-food credit off-take registereda growth rate of 6.8 per cent till January 15, 1999 as against 7.1 per cent in the corresponding period of 1997-98. Also investments by banks in corporate debt and equity grew at a lower rate of 34.3 per cent till December 4, 1998 compared to 64.2 per cent in the same period of 1997-98.

Total flow of funds from commercial banks comprising both non-food credit and investment in corporate debt and equity increased at a lower rate of 9.7 per cent till January 15, 1999 as against 11.5 per cent during the corresponding period last year. Net bank credit to government expanded by 15.7 per cent till January 15, 1999 against 10.6 per cent in the corresponding period of 1997-98. Investment in government securities which reflects the higher level of government borrowing was higher at 17.4 per cent till January 15, 1999 than at the figure of 16.6 per cent in 1997-98 for the same period of nine and a half months. Also, RBI support to central government borrowing which represents the central government's monetiseddeficit increased by 13.2 per cent till January 15, 1999 against a lower growth of 4.4 per cent in the corresponding period of 1997-98.

Sanctions by the three financial institutions -- IDBI, ICICI and IFCI -- increased by 36.9 per cent in the current financial year (April-December) whereas disbursements which is the actual indicator of credit offtake increased by 12.5 per cent. For the same period in 1997-98 sanctions had grown by 46.9 per cent while disbursements had grown by 18.5 per cent.The Survey points that despite low credit offtake in 1997-98 the profitability of banks improved. New private sector banks registered the maximum increase in operating profits while other banks registered lower increase in operating profits which ranged from 6.2 per cent to 28.9 per cent. Net profit of the State Bank of India and associates registered ``substantial improvement due to decline in provisioning requirements.

While bank profitability increased in 1997-98 the percentage of total assets declined for allgroups of scheduled commercial banks. The maximum decline was in the case of new private sector banks where the figure dropped to 2.18 per cent from 2.88 per cent in the previous year.. Increasing recourse to non-traditional banking activities has contributed to the decline in the spread, the Survey underscores.