MANGALORE: "If the Indian economy aims at achieving a 10 per cent growth or sustain the 8 per cent growth in the next 8-10 years, the farm sector must contribute to the Gross Domestic Product (GDP) at 4 per cent annually. For this, banks have to pump in more credit to the farm sector," Union Finance Minister P. Chidambaram said.

Delivering the valedictory address at the centenary celebrations of the Corporation Bank here on Sunday, Mr. Chidambaram said the contribution of the Indian banking industry to the growth of GDP was only 35 per cent while it accounted for 60-65 per cent in developed countries. Banks should pump in more money through various channels, including micro credit that helps small businesses and micro level industries to flourish.

Mr. Chidambaram urged bankers "not to clog, cut or sever" credit to the rural sector. Instead,the banks must channelise credit flow into the economy, he said, adding: "The demand for credit has never been more important than now." "Banks should also intensify deposit mobilisation... must encourage people to save in legal financial instruments like bank deposits and mutual funds," the Minister said.

Mr. Chidambaram said more investment would generate more income, which, in turn, would lead to more savings. "Bankers should induce people to make investments."

With the manufacturing and agricultural sectors showing great potential, Mr. Chidambaram said it would be unwise to "starve them of credit."

Addressing Karnataka Chief Minister H. D. Kumaraswamy, chief guest of the function, Mr. Chidambaram said the State must pioneer reforms in the cooperative sector to facilitate finances to agriculturists.

"As the cooperative credit structure has collapsed, the Centre has set apart Rs. 14,500 crore to revamp and restructure it," the Finance Minister said.

Money-lenders hold sway

Unaware of the banks providing agriculture credit at 12 per cent now, most farmers largely depend on money-lenders who charged them as high as 22 per cent.

To tide over the situation, the UPA Government has decided to provide credit at the rate of 7 per cent, he said.

The National Bank for Agriculture and Rural Development would refinance the remaining five per cent difference in interest rate to the banks.

To work out a plan in this regard, his Ministry has convened a meeting of Chairmen and Managing Directors of all public sector banks and senior officials from Nabard in New Delhi on March 22, he said.

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