In a communication to the Reserve Bank of India (RBI), PHD Chamber of Commerce and Industry (Phdcci) on Friday said interest rate should be six-seven per cent in real terms and 11-12 per cent in nominal terms in view of the decline in inflation rate, a chamber release said.

"In comparison with developed countries, our rate of interest is very high -- 16-18 per cent -- which makes it unattractive to investment growth," Phdcci said.

"The benefit of reduction in prime lending rate is hardly passed on to borrowers, particularly, small and medium enterprises," Phdcci president Ashok Khanna said, adding that although lending rates had softened, banks continued to charge high interest rate due to high spread prevailing in these banks.

Banks should determine lending rates based on technical assessment of risks involved rather than on the basis ofcustomers' perception and spreads should be reduced by increasing productivity and professional funds management.

Expressing concern at the declining credit-deposit ratio of banks while investment-deposit ratio has increased, he said it was an unhealthy trend for the growth of trade and industry depending on bank finance.

Pointing out the reluctance of banks to lend to trade and industry as against safer and zero-risk investments in government securities, Phdcci said a faulty public debt policy had encouraged bankers' risk averseness, urging RBI and the government to look into this issue.

While banks should address the quality of lending, Khanna said debt recovery tribunals should be efficiently used for redressal of non performing assets.

He also suggested introducing Samadhan schemes for redressal of NPAs and stronger laws and legal machinery for speedy recovery of debts.

"Banks' NPAs ratio though came down to about 17 per cent from 25 per cent, funds to the tune of over Rs 45,000 crore of publicsector banks are still locked up in npas," he said.

Costing of bank funds and services should be based on a rational formula with cost benefit ratio and banks should not raise their income through high levy of service charges, which should be on no-profit no-loss basis, he said.

Steep hike in bank service charges (20 per cent to 250 per cent) was not commensurate with the quality of services rendered by them, it said adding that this freedom of banks requires monitoring by indian banks association or RBI.

Further, banking ombudsman's role should be expanded and exporters' claims should also be addressed by them unlike the present where they treat banks negotiating export bills as loans or advances and do not entertain exporters' complaints, it said.