Liquidity injected by the Indian government and the central bank has not reached the cash-starved industry and consumers, posing a key challenge for the policy-makers, Commerce and Industry Minister Kamal Nath said today.
"We have injected liquidity into the banking system, but the liquidity is still not credit. Now the challenge is to make banks lend," Nath said at the India Brand Equity Foundation function at the World Economic Forum meeting here.
Since mid-September this fiscal, the Reserve Bank of India has taken steps to pump in close to Rs 4-lakh crore into the banking system to stem the impact of the global downturn on the Indian economy.
Following reduction in the key policy rates and relaxation in norms like the cash reserve ratio, banks have announced cuts in the lending rates ranging between 150-200 basis points.
However, the industry bodies have complained of the banks' reluctance to lend in a cautious environment.
Nath said while the Indian government is prodding banks to increase lending to stimulate demand, governments elsewhere are spending money just to save banks.
"They (governments elsewhere) are putting money to save banks which I think is completely a wrong strategy. If banks do not lend, there is no use of saving banks," he said.
Since the government owns majority of the Indian banks, External Affairs Minister Pranab Mukherjee, holding the charge of finance portfolio as well, has called a bankers' meeting in New Delhi on February 2. He is expected to advise them to enhance lending.