Loans for productive purposes will not be costlier: FM

New Delhi, Nov 18 | Updated: Nov 19 2005, 05:30am hrs
Finance minister P Chidambaram said there would be no hike in interest rates particularly on loans given for productive purpose during the current fiscal.

The impression that I have gained is that banks will maintain its current interest rate regime particularly for productive purposes like plant, machinery, construction the minister said, addressing mediapersons after the meeting with the heads of the public sector banks.

Mr Chidambaram also said interest rates on home loans was unlikely to see any increase in the near future especially in the wake of Reserve Bank of Indias decision to increase the risk weightage, which would take care of the upward pressure.

He added there was no problem with liquidity with the aggregate deposits growing by 12.3% and credit by 14.2% as of September. The incremental credit-deposit ratio was close to 100% but I still think there is ample liquidity, he said.

Re-iterating that consolidation in the banking sector was the need of the hour, Mr Chidambaram pointed out that Indian banks are highly fragmented.

Mergers and acquisitions among banks would take place sooner than later. Banks are talking to each other, he said, adding that the initiative must be taken by the the bigger banks.

On non-performing asset management, the minister said the banks had been asked to curb slippages, especially in new loans while improving cash recovery.

The target is to keep the NPA level below 2%, he said.

The minister said the Reserve Bank of India would soon come up with guidelines on raising tier II and III capital. Accordingly banks would have to draw their own plans of raising capital, based on their specific requirements, he added.

Pointing out that banks have to adhere to the court orders on the Right to Information Act, he said banks had pointed out the unlevel playing field that they are put into due to the act.

In addition Mr Chidambaram said the issue of distributing general credit cards was discussed in the meeting.

General credit cards would be for the rural population. Instead of kisan credit cards, there could be general credit cards which would not be confined to kisans only, he said.