Finance Minister Pranab Mukherjee Wednesday said banks have agreed to consider interest rate cuts, responding to his strong pitch saying measures to ease their burden were not being passed on and that industry needed credit at reasonable rates to push overall growth.
"They have agreed to explore the possibility," Mukherjee told reporters here after a review meeting on the country's financial sector with the chiefs of commercial banks and other lending institutions.
Addressing the bankers earlier, the finance minister had said affordable credit was necessary in the interest of overall development of the country and to ensure that the fruits of progress reach the average citizen.
"As a financial intermediary, banks have to stand by to provide credit at reasonable rates," said Mukherjee, adding the Reserve Bank of India (RBI) had cut key rates and eased liquidity but there was no matching cut in interest rates.
"This is an area of concern in many quarters both within the government and outside."
He said prime lending rate had, indeed, come down from 13.75-14.25 percent six months ago to around 12-12.5 percent now but the quantum of such reduction had fallen short of expectations.
"I would urge the banks to address these concerns expeditiously and in adequate measure. This will help restore the environment for rapid growth and ensure that the growth process benefits all our people."
He further argued that the financial position of commercial banks, especially those owned by the government, also remained robust with a 26 percent growth in their overall business and 27 percent jump in profits.
Mukherjee also gave glimpse of the overall state of the Indian economy and said steps taken by the government and RBI had resulted in a 5.8-percent growth in the last quarter of previous fiscal and 6.7-percent in the year as a whole.
"I hope that the impact of various pro-growth measures would help to turn around the economy soon."
The finance minister also assured state-run commercial banks that the government would infuse more funds to ensure their capital base remained strong and credit flow did not suffer in this regard.
He also made a pitch for consolidation among commercial banks to improve their competitiveness globally and reduce the risk to financial stability, but said such proposals had to come from bank managements themselves.
"The government would only play a supportive role as a common shareholder."