New Delhi, Aug. 18: In a bid to boost the economy, finance minister P. Chidambaram today asked banks to cut interest rates and reduce EMI for durables as part of a strategy to push consumption-driven growth.
"Consumers must be encouraged to buy more durables. I think the point has been well taken by the banks," Chidambaram said after a review meeting with chairmen of public sector banks.
"The middle class is complaining about increasing EMIs and stretching payment cycles. The middle class, which buys consumer durables is postponing purchases, and that is not good for the industry," he said, emphasising the need for EMI at affordable levels.
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 going.
"EMI must be kept at affordable levels so that people will buy two wheelers, cars, refrigerators, washing machines, cooking ranges and mixer grinders. That will keep the engine of manufacturing going and large industries will continue to produce these goods. The suppliers of parts and accessories in the small and medium enterprises will continue to do business," he said.
Giving the example of the State Bank of India, Chidambaram said the bank was giving four-wheeler loans at the rate of 400 a day when the EMI per lakh was Rs 1,766. When the figure was brought down to Rs 1,725, the number of loans rose to 700 a day. Then came the magic number: at an EMI of Rs 1,699, loans just went through the roof at 1,200 a day.
Pratip Chaudhuri, CMD of State Bank of India, told reporters that the minister "advised the banks to consider reducing interest rates for consumer durables".
The SBI has already reduced interest rates from 11.75 per cent to 10.75 per cent on some consumer durables.
Car sales rose 6.7 per cent in July, below the industry estimates as high interest rates and a tax rise stunted demand.
During the April-June period of the current fiscal, industry output contracted 0.1 per cent compared with a growth rate of 6.9 per cent in the same period last fiscal.
The performance of the manufacturing sector, which constitutes over 75 per cent of the index of industrial production, was also dismal in the April-June quarter as output declined by 0.7 per cent against a growth of 7.7 per cent in the three-month period a year ago.
After a review meeting with the public sector banks, Chidambaram also announced rescheduling of farm loans in drought affected states and revision in procedures for easy sanction of education loans to students.
The finance minister said new norms will be released under which no bank will be able to deny loans to students who meet the basic eligibility criteria in terms of marks and admissions.
Maintaining that health of the banking sector was extremely good, Chidambaram directed the banks to double the number of ATMs from 63,000 in two years and to make them cash accepting machines so that the money remains in the banking system.