"Telecom is a market with huge potential. How can a bank not lend to the telecom sector. Of course they will be encouraged to lend," he told reporters after meeting heads of public sector banks and financial institutions.
Banks were reluctant to lend to telecom companies following cancellation of 122 licences by the Supreme Court in the connection with 2G scam.
This capital intensive sector has been facing pressure on margins and cash flow following Rs 1.05 lakh crore payments to buy spectrum for 3G and wireless broadband segment services.
Chidambaram further said that the slowdown in the Indian economy is not permanent and it will pick up.
"Our slowdown is a temporary slowdown, it will pick up and once the turnaround comes, these (stressed) sectors will pick up, so banks must lend to all these sectors," he said adding banks cannot say no to lending because there is a slowdown.
The Finance Minister also said that agriculture, steel, textile, infrastructure and telecom infrastructure are among the stressed segment in the economy.