Finance Minister P Chidambaram will soon meet heads of public sector banks to impress upon them the need to lower interest rates in select sectors, including auto, to boost demand and promote sagging growth.
"Lower interest rates will depend on the lending capacity of banks. Banks to decide on sectors where lower rates will boost demand. I will meet bankers soon," Chidambaram said.
The government has decided in principle to enhance capital infusion into PSU banks over and above what was provided in the budget to enable them to extend additional credit to the auto and consumer durables sectors.
The decision to increase the quantum of capital infusion from Rs 14,000 crore provided in the budget was taken today at a meeting here between Chidambaram, RBI Governor Raghuram Rajan and Economic Affairs Secretary Arvind Mayaram.
"This amount will be enhanced sufficiently. The additional amount of capital will be provided to banks to enable them to lend to borrowers in selected sectors such as two-wheelers and consumer durables at lower rates in order to stimulate demand," a Finance Ministry statement said.
"While this will bring relief to consumers, especially the middle class, it is also expected to give a boost to capacity addition, employment and production," it added.
Output of the consumer durables sector declined 9.3 % in July compared with growth of 0.8 % in the same month last year, the Ministry of Statistics and Programme Implementation said on September 12. The segment saw a 12 % decline in output in April-July compared with growth of 6.1 % a year earlier.
Production of consumer durables reflects demand for products such as TVs, fridges and washing machines.
Two-wheeler sales recorded 0.72 % growth in the April-August period as against 6.8 % a year earlier.