Leading banks are likely to cut interest rates by 50-100 basis points in days to come, a move that can help to generate demand and propel economic growth in the country.

External affairs minister Pranab Mukherjee, holding Finance portfolio due to bypass surgery of Prime Minister Manmohan Singh, is meeting top executives of banks on Monday to discuss the matter. He can ask banks to cut lending rates on home, retail and auto loans to revive demand in the economic system. Banks may revise prime lending rates (PLR) or the benchmark interest rate by 50-100 basis points besides some concessions for SMEs and infrastructure firms.

Government may also ask banks to provide assessment on credit given to the housing sector, small businesses and infrastructure firms, forcing banks to maintain a steady credit flow to all sectors of economy. An official in the Finance Ministry said, "There is enough money in the system. Banks want to lend as they are borrowing money at 8-9 per cent and need to give loans and not park money with the RBI which is now paying a miserable 5.5 per cent interest."

However, banks fear that reduction in interest rates can lead to decline in interest rates on deposits. Experts believe government is unlikely to reduce interest rates on small savings, a major attraction for small and middle class people, due to some political considerations.