India Inc. welcomes RBI move, but banks not for immediate rate cuts

December 6th, 2008 - 5:49 pm ICT by IANS  

New Delhi, Dec 6 (IANS) Hours after the Reserve Bank of India (RBI) slashed key interest rates, India Inc. Saturday welcomed the move, saying it was a “a good start in the correct direction” even as leading commercial banks remained reluctant to immediately bring down lending rates.Welcoming the 100-basis points cut in repo and reverse repo rates, the Associated Chambers of Commerce and Industry (Assocham) president Sajjan Jindal said it would give some relief to the interest-sensitive automobile, real estate and infrastructure sectors.

“With reduced repo and reverse repo rates, money will flow into the system to support the projects that have been put on hold,” Jindal said.

The repo rate, currently at 7.5 percent, is the interest charged by the RBI on borrowings by commercial banks.

The reverse repo rate, presently at 6 percent, is the rate at which the central bank borrows money from commercial banks.

There were no changes in cash reserve ratio (CRR) and statutory liquidity ratio (SLR) rates.

Jindal, however, said the industry was “anticipating slash in SLR and CRR also”.

The Federation of Indian Chambers of Commerce and Industry (FICCI) described the RBI move as “a good start in the correct direction” and added: “The central bank could have gone a step further by cutting the CRR and SLR rates to send a stronger signal of liquidity support to corporates.”

“Refinance facility of Rs.11,000 crore (Rs.110 billion) to the SME (small and medium enterprises) and the housing sectors are positive steps, especially the decision to bring loans up to Rs.20 lakhs (Rs.2 million) for housing under priority sector,” FICCI secretary general Amit Mitra said.

He, however, added that FICCI was disappointed to note that there was no major succour for the automobiles and the white goods sector even though the RBI had made the cost of 180-day credit cheaper for exporters.

Mitra expressed hope that commercial banks will slash their lending rates following the steps taken by the RBI.

However, leading banks, though they welcomed the rate cut, refused to signal any immediate interest rate cut.

Chanda Kochhar, joint managing director and chief financial officer of ICICI Bank, the country’s largest private bank, said: “This is certainly a very strong signal. But as I have always said just repo rate cut do not ensure there is enough liquidity in market.”

“There are many other factors to be considered. It requires some cooling off time to go for interest rate cut on credits,” Kochchar added.

She added that the bank had already brought down interest on housing loan by 1.5 percent.

Punjab National Bank (PNB) chairman A.C. Chakraborty said: “We cannot cut interest rates everyday. Have to see if inflation is coming down.”

He added that PNB could look at cutting rates only by January.

Keki Mistry, managing director and vice chairman of HDFC Bank also welcomed the RBI decision.

He said even if the bank would reduce lending rate, that would be between 50 to 100 basis points.

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