To spur demand and make funds available to consumers, the Reserve Bank of India (RBI) is mulling a scheme as that of the Bank of England, called “funding for lending”, wherein it offers funds to banks at a cheaper rate for lending to priority sectors like housing and auto.
As the high rate of inflation may leave the RBI with little elbow room for a rate cut in its forthcoming monetary policy review on Friday, the Finance Ministry and the apex bank are considering cheaper funds for banks through a funding route similar to that of the Bank of England.
Cheaper funds to banks will help them extend housing and auto loans to consumers ahead of the festive season, which will help boost growth in the two sectors as they have witnessed poor sales. “The Finance Ministry is evaluating a scheme launched by the Bank of England wherein it provides funding to banks and building societies at lower rates,” a ministry official said.
RBI governor Raghuram Rajan, who is slated to present his maiden mid-term policy review, held discussions with Prime Minister Manmohan Singh and Finance Minister P Chidambaram on Tuesday. “The RBI has constant consultations with the Finance Ministry. We discussed the whole gamut of issues,” Rajan had said after the meeting.
The Bank of England’s ‘Funding for Lending’ scheme provides incentives for banks and building societies to boost their lending.
If a similar scheme is launched by the RBI and the government, it would allow consumers to access funds at lower rates to buy vehicles and real estate.