Finance Minister P. Chidambaram is raring to go. With growth in industrial output turning negative in as many as eight of the 22 industry groupings, he hopes to revive consumer spending by making retail finance cheaper.

In a move that may revive demand in the flagging consumer durables sector, he has told banks to ensure that loans to individuals for consumer durables are made cheaper and easier to access.

This means retail consumers can look forward to lower equated monthly instalments (EMI) on TVs, refrigerators and other appliances.

Significantly, at his meeting with bank chiefs here today, Chidambaram prodded them to reduce the interest burden on automobile loans, a move that may revive the fortunes of the industry and spur demand across other sectors.

Manufacturing engine

“EMIs must be kept at affordable levels so that people will buy two-wheelers, cars, refrigerators, washing machines, cooking ranges, mixies and grinders,” he said.

That will keep the engine of manufacturing going and large industries will continue to produce these goods.

The suppliers of parts and accessories in the small and medium sector will continue to do business, he added.

This message was clearly communicated to all the public sector banks at the first performance review meeting chaired by the Minister.

Does this mean reduction in general interest rates? People in the banking industry say ‘no’.

According to them, EMIs can be lowered even without a cut in either key policy rates by the Reserve Bank of India or the prime lending rates by banks. The cuts can be achieved by banks reducing the cost of their deposits.

Banking sources said that at present nearly 60 per cent of bank deposits are bulk in nature. That is, deposits above Rs 1 crore, mostly from commercial customers, attracting higher interest than the usual fixed deposits.

Reduction in bulk deposit rates will reduce the overall cost of funds and, thus, the equated monthly instalments can be lowered, they added.

The Finance Ministry has already asked banks to cap bulk deposits at 10 per cent of the total.

ATM Network

Chidambaram said that lower EMIs will, on the one hand, bring more business for the banks and, on the other, support the consumer durables business. To drive home his point, he said that when State Bank of India was taking Rs 1,766 per lakh per month as EMI for a car loan, it was giving out 400 car loans a day.

This number rose to 700 when the EMI was lowered to Rs 1,725 per lakh per month. And the number of car loans disbursed daily rose to 1,200 when the EMI was reset at Rs 1,699 per lakh per month. Banks have been asked to follow SBI’s example. For more liquidity, Chidambaram advised banks to make sure their automated teller machines (ATMs) were not just cash dispensers, but also cash acceptors.

Such an arrangement would help even small shopkeepers deposit a part of their daily collections, he said.

Banks were also asked to double the number of ATMs in the next two years. There are nearly 63,000 ATMs across the country now.

Home loans

Chidambaram asked the Indian Banks’ Association to set up a group to look at revitalising the home loan sector.

This group will suggest solutions to meet the increasing demand for home loans, issues related to incomplete housing projects, and ready built but vacant houses.

“Housing loan is a complex issue,” he said. “What I have heard is that there are nearly 5 lakh houses that are fully built but lying vacant in Mumbai.”

> Shishir.sinha@thehindu.co.in

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