The finance ministry may ask the public sector banks to keep their interest rates on retail loans low to boost economic growth. The state run banks account for around 70 % of the banking business.
An official from the ministry said that the finance minister, Mr. Pranab Mukherjee will meet heads of public sector banks and ask them to maintain the low interest rates in order to enhance the availability of cheap credit.
The government usually regulates the interest rates through public sector banks since it does not have any control over the key rates fixed by RBI.
Public sector banks like SBI and PNB have been aggressive in the retail loan segment and the sector is showing signs of recovery since May. The rise in demand for auto loans led to a record Rs 3400crore disbursal. This was the highest in a month for previous two years. The demand in the loans dipped last year due to global meltdown.
Various other banks like Bank of Maharashtra and Bank of Rajasthan slashed home loan interest rates to enhance the demand in the retail loan space.
DK Joshi, principal economist at Crisil said "The demand revival that we are witnessing, whether in auto sales or home sales, is at a nascent stage. Considering the backward linkages in the economy to these segments, the government may have to take measures to keep demand high."
India economy grew at 6.7 percent last fiscal after growing at around 9 percent in the previous three years. Easy access to cheap credit is considered vital to attain high growth rates and that is the reason the finmin wants to persuade banks to keep low interest rate regime.