On Saturday March 28th, Prime Minister Manmohan Singh said that the interest rates can be slashed further at the backdrop of ample liquidity and low inflation. "With ample liquidity and low inflation, there is scope perhaps for a further moderation in interest rates," he said.
He asked the industry to review the impact of economic slowdown over the weaker sections and thereby lower the interest rates. "While public sector banks have reduced the prime lending rates in the last three months between 150 and 200 basis points, other scheduled commercial banks are yet to respond in equal measure," he said.
In fact he expressed his discontentment at the private banks that had been inflexible in lowering the lending rates despite of the huge cuts by the Reserve Bank in recent months. Since October, RBI has cut its key lending rate by 400 basis points.
The private lenders have been hesitant due to the increased risk aversion policy adopted at the time of slowdown. The PM also said that even though the credit growth of PSU banks during the year had been 23% as against 22% last year, "the credit flow from private and foreign banks has been of the order of one-third to one-fourth of what it was a year ago."
Meanwhile talking about the growth targets, Singh said the economic growth for the country is estimated to be sluggish to around 7.1% for 2008-09 against 9% or more growth in the previous years. This is a result of global financial turmoil that hit the key sectors of the economy. However Singh said that the auto, steel, cement and farm sectors were showing some signs of revival.
"The auto sector after a difficult patch seems to be showing signs of recovery. Food grain production for 2008-09 is likely to be in excess of 228 million tones. The rural demand for goods and services appears quite robust and the outlook in the agricultural sector gives room for optimism," he said.
He also confirmed that the government is closely watching the sectors which are still facing difficulties. "We are aware that a big push to infrastructure would have a counter-cyclical influence and have taken steps to ensure that this happens in 2009-10 and beyond," he said.
The views were kept forward by the PM in meeting that included Ratan Tata, K V Kamath, Sunil Mittal, Rahul Bajaj, Shashi Ruia, Harsh Pati Singhania, Sajjan Jindal, R P Goenka, Baba Kalyani, Tarun Das, Amit Mitra and Kumar Mangalam Birla.