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The slowdown in the industrial growth and the drop in private consumption has become a matter of concern for the Reserve Bank of India.
The slowdown needed further exploring to assess whether some of the segments were reflecting correction of the excesses in the previous years or if there were sector-specific factors, RBI said in its third quarter review of monetary policy 2007-08.
In view of the prevailing liquidity conditions and the sustained profitability of banks as reflected in net interest margins, there is a need for banks to undertake institutional and procedural changes for enhancing credit delivery to sectors that are employment-intensive.
The banking regulator is ready to support banks for making changes after doing de-segregated analysis, RBI Governor Y V Reddy said
The manufacturing sector recorded a lower growth of 9.8 per cent during April-November 2007 compared with 11.8 per cent a year ago.
Growth of the consumer goods sector droped to 5.2 per cent during the period from 9.9 per cent previous year, largely reflecting the sharp decline in the consumer durable segment.
While growth in investment demand is likely to ease the supply constraints in future by adding capacities, the moderation in private consumption expenditure warrants consideration.
T Narayanasami, chairman and managing director, Bank of India, said the slowdown in private consumption was due to the inability of consumers to pay higher interest rates. If the risks weight for consumer loans are reduced, the banks could think on growing lending in this segment.
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