Rate cuts have not helped, says industry

January 25th, 2009 - 2:29 pm ICT by IANS  

New Delhi, Jan 25 (IANS) The recent rate cuts by the central bank have not helped the corporate sector as banks have not lowered their lending rates, an industry lobby said Sunday.According to the Associated Chambers of Commerce and Industry (Assocham), 78 percent of the 150 chief executives and managing directors polled in a recent survey said the liquidity crisis persisted despite the Reserve Bank of India (RBI) reducing rates, as banks are not willing to lend money.

“There is scope for slashing lending rates by the banks as the Indian banking sector has recorded impressive growth in net interest income, which has risen 37 percent during the third quarter of the current fiscal,” the chamber said in a report.

As per the Assocham Research Bureau, the net profit of 15 banks has risen 52 percent in the third quarter.

“Slashing of policy rates need to be supported by effective credit delivery to industry, suffering from high financing costs, credit squeeze, lower consumer spending and falling demand,” said Assocham president Sajjan Jindal.

The chamber also asked RBI that any easing of monetary policy should translate into lower bank lending rates. This could be done if it reduced its repo rate to 3 percent to induce banks to cut interest rates, the chamber said.

Earlier this month, RBI had cut the repo rate by 11 basis points from 6.5 percent to 5.5 percent, and reverse repo rate from 5 percent to 4 percent.

The repo rate is the interest charged by the RBI on borrowings by the commercial banks. Reducing this lowers the cost of borrowings for commercial banks. The reverse repo rate, on the other hand, is the rate at which the central bank borrows money from commercial banks.

Assocham said though inflation rate has come down to around 5 percent and is expected to fall further, other economic indicators present gloomy picture.

Industrial production growth for April to November this fiscal was 3.9 percent, compared to 9.2 percent in the corresponding period the previous year. The core sector growth too fell to 3.6 percent to 6.4 percent in the year-ago period.

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