Oct. 29: The industry said the central bank “did not do enough” in reducing lending rates. Chambers said the 25-basis point cut in the cash reserve ratio (CRR) and the bank rate was short of expectations, and may not lead to softening of lending rates.
CII president Ashok Soota said, “A further 25 basis point cut is welcome. Though it reflects RBI's commitment to a soft interest rate regime, it is doubtful whether the bank rate cut will lead to commercial banks reducing their lending rates.”
The chamber was disappointed with RBI leaving the administered savings rate unchanged. “We had expected RBI to deregulate this last bastion of administered interest rates, but it did not do so.”
Ficci said the move to reduce interest rates would have a positive impact on economic growth, but felt the credit policy was marked by “abundant caution”. Ficci had expected the RBI governor to cut the bank rate by 100 basis points.
“The industry hopes this token cut will translate into a meaningful cut in the prime lending rate (PLR), which is important at this juncture to support industrial growth. We are pleased that nature of change is in the right direction,” Ficci said.
Soota said: “More reforms are needed in the banking sector before we have globally competitive real interest rates in the country.”
Assocham president R. K. Somany said “Real interest rates in the economy are still high, and the credit offtake is still low. The industry was expecting a 50-basis point cut in the bank rate and CRR.”
P. D. Patodia, president of the Federation of Indian Exporters’ Organisation (FIEO), said the policy was disappointing for the exporters. “Only certain procedural simplifications were announced, which was not enough,” he said.
The president of Merchants’ Chamber of Commerce, Sunil Kanoria, said in a statement the RBI governor’s efforts to keep lending rates low would lead the credit flow into the desired sectors of the economy.
Kanoria said the new credit policy, however, overlooked the critical need for long-term funds and risk capital for industries without which sustained growth would be impossible.
H. M. Bangur, president of the Bharat Chamber of Commerce, said that the credit policy would help the country in providing adequate liquidity in the system. He said that the decision to cut the bank rate by 0.25 per cent from 6.50 per cent would reduce the banks' cost of deposit and borrowings, while the reduction in CRR would increase lendable resources.
The Indian Merchants’ Chamber has welcomed RBI’s decision to cut bank rate and CRR. These positive measures contained would aid the process of industrial recovery, which has just begun, it said.
“Constituents of the apex bank's credit policy are realistic and growth-inducing and now it is for the government and industry to make the best use of various liberal measures announced in the policy,” IMC president Suresh Kotak said.
Another policy measure, the long-term lending by banks, would give rise to many innovative financial instruments for strengthening the growth process, increasing the depth of the debt market, encouraging more players to enter the financial market—all leading to making available more funds at competitive rates, he added.