Survey pitches for lowering of lending rates

NEW DELHI: Unsatiated by the ''moderate'' interest rate prevailing in the country, the pre-Budget Economic Survey on Friday pitched for lowering of lending rates to industry and agriculture.

Though there was a marginal rise of 0.25 per cent in the deposit rates of five major banks, the Survey presented by Finance Minister P Chidambaram to Parliament said "nevertheless, interest rates continue to be moderate."

In the changing scenario, role of Development Financial Institutions has declined and is posing a challenge to banks in meeting the long term requirement of funds but it said adherence to Fiscal Responsibility and Budget Management Act was likely to reduce exposure to Government papers and thus release more funds to long term projects.

While the introduction of Benchmark Prime Lending Rates has to an extent addressed the problem of downward rigidity of lending rates, it said the widening interest spread suggests that further efforts were needed to tackle the problem of downward rigidity of lending rates.

The pre-budget survey said the continuing reduction in the non-performing asset levels and interest expenditure should enable banks to "set the lending rates on a more realistic basis. This would go a long way in sustaining the growth in the non-food sector."

Non-food credit grew by over 24 per cent till January 21 and in absolute terms, the incremental non-food credit stood at Rs 1,94,688 crore, the highest growth witness since 1996-97, it said.