RBI policy rate cuts below industry expectations

NEW DELHI: Industry on Tuesday said the RBI measures towards lower interest rates will reduce the credit cost, but the central bank should have gone in for deeper cuts in policy rates in the face of the difficult business environment.

"A deeper cut in repo and reverse repo rates by at least 50 basis points would have been appropriate, given the fact that the cost of credit is still high...," Confederation of Indian Industry Director-General Chandrajit Banerjee said.

In its annual credit policy, the Reserve Bank announced 25 basis points cuts in both the short-term lending (repo) and the borrowing (reverse repo) rates giving a signal to banks to further reduce interest rates.

While the industry welcomed the measure, it said the cut in the policy rates was below their expectations.

"The corporate sector was expecting 50 basis points cut in the repo and reverse repo rates," Assocham President Sajjan Jindal said. He said the prime lending rates (PLR) of commercial banks should be brought down to a single-digit level.

Despite repeated cuts in the interest rates since September 2008, the PLR of private-sector banks ranges between 12.7 per cent and 16.75 per cent, while for public-sector banks the lending rate is between 11.5 per cent and 13.5 per cent.

The Federation of Indian Chambers of Commerce and Industry (FICCI) said against a fall of 400 basis points in the repo rates in the recent months, the commercial banks have reduced PLR by only 150 basis points.

It wanted RBI to be more aggressive in the policy stance. "The cut in the repo rate could have been steeper because of the strong cushion provided by the extremely comfortable position with regard to inflation," FICCI President Harsh Pati Singhania said.

The PHD Chamber said high interest rates, particularly by the private-sector banks, had made it difficult for the businesses to borrow and invest. "It has been experienced that there has been lower credit delivery on the part of the private and the foreign banks," it said.

However, the industry welcomed the relaxation of policy on the external commercial borrowings and buy-back rules for foreign currency convertible bonds (FCCBs).

The buy-back limit on FCCB has been enhanced to $100 million from $50 million. "In the current environment this would help companies with internal accruals to manage their fund-flow appropriately," the FICCI president said.