Oct. 21 (Bloomberg) -- Chancellor of the Exchequer Alistair Darling and Business Secretary Peter Mandelson will meet the chief executives of Britain's leading banks on Oct. 23 to urge them to resume lending to small businesses.

The government last week said it would buy stakes worth 37 billion pounds ($65 billion) in Royal Bank of Scotland Group Plc, HBOS Plc and Lloyds TSB Group Plc. In return, banks that have raised the prices and reduced the availability of loans since the credit crunch began last year, should resume lending to businesses and homeowners ``at 2007 levels.''

Mandelson, giving evidence to a committee of lawmakers in Parliament today, said that didn't mean banks were expected to lend as much money as last year or ignore risk criteria. Other banks not taking government rescue cash also will be asked to resume lending as well, he said.

``We're looking to the banks to maintain the availability and active marketing of competitively priced lending to small and medium-sized enterprises,'' Mandelson said. ``We aim to ensure that capital provided by government to banks is allocated to their small business lending.''

The business secretary also confirmed that the government's rescue package to HBOS and Lloyds TSB is ``predicated on their merger going ahead.'' To cancel that planned merger, announced last month, would, according to Mandelson, ``entirely change the proposition.''

To contact the reporter on this story: Robert Hutton in London at rhutton1@bloomberg.net

Last Updated: October 21, 2008 08:14 EDT