Nov. 4 (Bloomberg) -- India's state-run banks will ensure interest rates are lowered enough to free up the flow of credit to companies in Asia's third-biggest economy, Finance Minister Palaniappan Chidambaram said.

``I have impressed upon the banks to ensure the delivery of credit at an appropriate price,'' Chidambaram told reporters in New Delhi today. ``We are committed to provide adequate liquidity to the system.''

Overnight call money rates rose to 19.5 percent on Oct. 31, the highest this year, a day before the central bank used all its three main tools to increase cash with banks. Overnight call money rates traded at 7.7 percent today, according to data on the Bloomberg.

The central bank lowered its repurchase rate to 7.5 percent from 8 percent, reduced the amount of deposits that lenders need to set aside as reserves to 5.5 percent from 6.5 percent, and cut the amount of money lenders are required to keep in government bonds to 24 percent from 25 percent.

The Reserve Bank of India is also considering giving an additional 100 billion rupees ($2.1 billion) each as lines of credit to National Housing Bank and Small Industries Development Bank of India, the finance minister said. That in turn will increase flows for mortgages and small companies.

Shares of DLF Ltd. and Unitech Ltd., the biggest developers, rose after the finance minister's comments. DLF rose 17 percent to 296.4 rupees at the 3:30 p.m. close of Mumbai trading. Unitech rose 14 percent to 55.65 rupees.

Bank Report

The banks will report every two weeks on which industries are getting loans for a better understanding of credit delivery, the minister said after a meeting with the chief executives of state- run banks.

The banks will be able to meet the 2.8 trillion rupee ($58 billion) target for loans to the agricultural sector in the year to March, Chidambaram said.

State Bank of India, the nation's biggest, will decide on cutting interest rates this week, Chairman O.P. Bhatt said after meeting the finance minister. The bank may lower lending rates by 25 basis points to 50 basis points, he said. One basis point is one-hundredth of a percentage point.

``There was a consensus among bankers that there is a downward bias in interest rates,'' Bhatt said. ``There is a consensus that interest rates should be cut both on lending and deposit sides.''

Interest Rates

ICICI Bank Ltd., India's second-biggest lender, will decide on reducing its lending and deposit rates after reviewing the impact of the central bank's measures, Chief Executive Officer K.V. Kamath told reporters in New Delhi yesterday.

Prime Minister Manmohan Singh told company chiefs yesterday that the global financial crisis is worse than expected and is hurting growth, assuring them of government support to tide over its effects. Singh had said earlier that the country should prepare itself for a temporary slowdown this year.

Companies sought deeper cuts in interest rates and the amount of bank reserves to improve the availability of cash at a meeting with Prime Minister Singh yesterday.

The Federation of Indian Chambers of Commerce & Industry, a lobby group, sought a reduction in the cash reserve ratio to 4.5 percent from 5.5 percent and a cut in the key interest rate to percent.

To contact the reporters on this story: Sumit Sharma in Mumbai at sumitsharma@bloomberg.net

Last Updated: November 4, 2008 05:57 EST