New Delhi, Nov. 4: Finance minister P. Chidambaram today asked public sector banks to ensure easy flow of credit to most sectors, while keeping an eye on the quality of loans.

“Every two weeks, banks will report on the industries that are receiving loans for a better understanding of credit delivery,” the minister said after a meeting with the chiefs of state-run banks. This will ensure equality in the distribution of credit among sectors, he said.

The minister today announced that the credit guarantee on loans would be enhanced to Rs 1 crore. Credit guarantee is a government surety on all loans advanced by state-run banks to the small-scale industry and micro finance institutions.

Chidambaram said enough liquidity had been infused into the financial system and commercial banks would now step up credit delivery at the right price.

“We have had an extensive discussion and the Indian Banks’ Association has assured me that they would reflect on the matter (interest rates) and come up with some decisions on the price at which credit would be delivered to the different sectors,” the minister said.

After their meeting with the finance minister, the heads of several state-run banks, including the SBI, Bank of Baroda, Vijaya Bank and Uco Bank, promised to cut benchmark lending rates by up to 75 basis points.

Chidambaram has asked all public sector banks to give their capital requirement for the fiscal year ending March 31, 2009 and the subsequent three years.

Requests for additional lines of credit by the Small Industries Development Bank of India and the National Bank for Agriculture and Rural Development will also be examined, said Chidambaram.

He said that the National Housing Bank had sought an additional line of credit worth Rs 10,000 crore to finance realty firms.

“Adequate finance will be provided to small and medium enterprises and the housing sector,” he said.

The government, concerned about bad loans in sensitive sectors such as capital markets and real estate, wants banks to follow prudential rules while lending to investors. This is more for sensitive sectors to prevent loans from turning into non-performing assets.