Continuing the flow of home loans and accessing low-cost deposits are two key elements of the government's instructions to public sector banks.

Sources said that the two issues will figure prominently during Finance Minister P Chidambaram's meeting with the heads of 28 state-run banks on Wednesday.

While almost all public sector banks have increased the prime lending rate, they have opted to keep the interest rate on home loans up to Rs 30 lakh and education loans unchanged.

When Chidambaram meets the bank chiefs he wants a specific report on the flow of loans under these two segments along with their first quarter performance. The review of non-performing assets and other key parameters will also come up for discussion.

According to the latest Reserve Bank of India data, the growth in the overall home loan portfolio had slowed down to 13.8 per cent till May-end this year, compared to 21.6 per cent last year.

As of May 23, 2008, the total outstanding home loans were estimated at Rs 2,62,486 crore (Rs 2,624.86 billion). The year-on-year variation in the housing loan portfolio till May 23, 2008 was estimated at Rs 31,735 crore (Rs 317.35 billion), compared to Rs 41,066 crore (Rs 410.66 billion) in the corresponding period last year.

The finance ministry has asked banks to ensure that the flow of loans for the purchase of consumer goods, as also home loans, does not slow down though RBI has specifically targeted these segments in its efforts to moderate the credit growth.

Though bankers maintained that there are no instructions to push home loans, even those up to Rs 30 lakh (Rs 3 million), they have argued that the move to keep rates intact for existing customers is aimed at checking defaults.

"These loans are part of priority sector lending and borrowers in this segment need to be supported. A higher loan growth in this segment will spur consumption, which is good for the economy," added a public sector bank chief.

While a senior State Bank of India [Get Quote] executive did not disclose the growth in the home loan portfolio during April-June he said, the bank with outstanding of Rs 46,000 crore (Rs 460 billion) in its home loan portfolio, has seen its portfolio grow across the country. In the semi-rural and rural sector alone, the home loan portfolio is close to Rs 13,000 crore (Rs 130 billion).

The other issue on the seven-point agenda for Chidambaram's meeting is accessing low or lower cost funds. Bank of India chairman and managing director T S Narayanasami said public sector banks have not leveraged their reach. "It is time to transform the work culture, be cost effective and get more low cost resources," he said.

Narayanasami, who is also the chairman of Indian Banks' Association said, banks will need to raise more deposits to meet the credit expansion targets.

An SBI executive said that the use of debt cards was one way in which the bank was looking to increase the share of CASA.