New Delhi, Aug 18 (PTI): Finance Minister P Chidambaram on Saturday asked banks to cut interest rates and keep EMIs or equated monthly instalments at affordable levels to encourage sale of consumer durables, which in turn will restart the engine of manufacturing.
After a review meeting with the chiefs of public sector banks against the backdrop of economic slowdown, he also announced rescheduling of farm loans in drought-affected states and revision in procedures for easy sanction of education loans to students.
Maintaining that the health of the banking sector is extremely good, Chidambaram directed the banks to double the number of ATMs from 63,000 in two years and also to make them cash accepting machines so that the money remains in the banking system.
“Most of our problems will be over if we revive investment. Investment must be revived across the board--- small, medium and large industries,” he said.
He said sentiment is only one factor, and sentiment will change if the other issues are addressed.
He said the bank chairmen have been candid and they have identified a number of issues such as fuel supply agreement for power projects, delay in clearances and approvals, land acquisition and payment delays by government entities such as the National Highway Authority of India and the state electricity utilities.
Chidambaram said he would take up the issues with the ministries concerned.
“Once we get the investment cycle going, once we get the investment engine started many of our problems can be solved. We have asked the banks to focus on sectors that deserve credit,” the minister said.
Asserting that the EMIs should be kept at affordable levels, Chidambaram said, “the middle class is complaining about increasing EMIs and stretching payment cycle. The middle class…postponing purchases is not good for the industry”.
He said just as investment plans must be brought forward, consumers must be encouraged to buy consumer durables to keep the engine of manufacturing going.
“EMIs must be kept at affordable level so that people will buy two-wheelers, cars, refrigerators, washing machines, cooking ranges, mixies and grinders.
“That will keep the engine of manufacturing going and large industries continue to produce these goods. The suppliers of parts and accessories in the small and medium enterprises will continue to do business.” he said.
Chidambaram cited the example given by the State Bank of India chairman, that cars sales picked up momentum after the bank lowered EMIs.
SBI had been selling 400 cars per day when the EMI was Rs 1,766 per lakh per month for the seven-year loan. Sales jumped to 700 cars per day, when the EMI was brought down to Rs 1,725 per lakh, and shot up to 1,200 cars once the EMI was further reduced to Rs 1,699.
“I have urged the other banks to look at SBI example,” he said. “The point is well taken.”