New Delhi: Finance minister P. Chidambaram on Friday asked the country’s top bankers to see if they could reduce interest rates to boost demand in the backdrop of concerns that economic growth may be tapering off.

Six bankers, including the chairman of State Bank of India, O.P. Bhatt, and six industry representatives, including Maruti Suzuki India Ltd managing director Jagdish Khattar, attended the meeting with Chidambaram.

Some bankers told finance minister P. Chidambaram they were currently in no position to unilaterally bring down rates

The finance minister asked banks to revisit interest rates to boost demand, said Khattar, one of the four representatives from the automobile industry. Two of the bankers at the meeting said they were not in a position to unilaterally bring down rates at the moment. K.V. Kamath, chief executive officer of ICICI Bank Ltd, said: “Key is monetary policy."

The Reserve Bank of India (RBI) quarterly monetary policy statement is scheduled to be announced at the end of this month.

Economic growth in the first quarter of the current fiscal year was 9.3%, higher than the average growth rate of 8.6% in the preceding four years.

Growth in the index of industrial production for April-July, however, slowed to 9.6%, compared with 11.1% recorded for the corresponding period of the previous year. Among the industries, automobile sales declined in absolute terms during April-July against the corresponding period of the previous year. Overall sales of automobiles in this period slipped 5.7% to 2.24 million units, compared with 2.4 million units a year ago.

About 70% two-wheelers and 90% four-wheelers sold in India are bought on credit, and the slowdown in sales has been caused largely on account of RBI’s monetary policy stance of hiking interest rates to combat inflation. RBI has increased the overnight lending rate for banks six times since January 2006.

It currently stands at 7.75%, a five-year high. The hike in interest rates has been accompanied by a slowdown in total bank credit this year. The year-on-year growth in gross bank credit on 17 August was 23.1%, compared with 31.4% in the previous year.

Concerns about the impact of the drop in automobile sales on economic growth are on account of the factors driving growth in India.

“India’s growth in recent years has been mainly driven by domestic consumption contributing on an average to almost two-thirds of overall demand," said RBI governor Yaga Venugopal Reddy during a speech in Stockholm in September.

Economic data currently available does not clearly indicate if there is a problem. “The signals are mixed, the extent of slowdown in the economy is difficult to gauge at the moment," said D.K. Joshi, principal economist at Crisil Ltd, a subsidiary of international rating agency Standard & Poor’s. He added that there was no credit crunch in the economy right now.

The inflation rate based on the wholesale price index (WPI) has fallen in the recent past. WPI inflation was 3.52% for the week ended 1 September against 5.34% a year ago. But the WPI number may not convey the right picture on inflation.

There is some amount of latent inflation in the economy as the government has not allowed state-owned oil companies to increase retail prices to offset the firm trend in international crude price, said Joshi.

K.C. Chakrabarty, chairman and managing director of Punjab National Bank (PNB), one of the six bankers who met Chidambaram, felt interest rates are unlikely to see a significant change in the near future (up to six months). “Outlook for interest rates is stable," Chakrabarty had said at a press conference on Thursday.