State banks are seeing a large demand for loans over the past two months after the move by the government to slash interest rates on loans from these banks in a bid to stimulate the economy and encourage more private sector investments.

“There was a lack of demand for loans in the beginning of 2009, but for the past two months we see more and more applications coming in,” Gamini Wickremasinghe, Chairman Bank of Ceylon (BOC) told Business Times.

He said that BOC has received applications for more than Rs 3 billion loans as of now. “These are purely applications for public servants housing loans,” he said. He also noted that other types of loans are also in big demand compared to 2008 and the numbers will be good for 2009.

He said that in 2008 BOC granted some Rs 10 billion loans. Banking industry analysts noted that state banks will have to cushion the impact on the interest rate cuts due to their huge savings and current account balances.

Stockmarket analysts said that foreign investors will benefit by the move to bring down interest rates on borrowing. “The cost of income ratio will increase and affects productivity in corporates. The move will also encourage entrepreneurship that would accelerate development work in the country,” an analyst noted.