Banks must pass on rate cuts to revive growth: India Inc

With the Reserve Bank of India painting an optimistic picture for the rest of fiscal 2017 and cutting rates, enthused India Inc leaders said they would press the pedal on new investments as lower interest rates would encourage customers to spend more in the coming months. The CEOs also demanded that with the RBI cutting rates to six-year low, it’s now time for the banks to pass on the benefits to their customers.

In its policy, the RBI said though the recent data of index of industrial production (IIP) turned out to be slower than a year ago, the outlook remains bright. “The public investment in roads, railways and inland waterways, the recent efforts to unclog cash flows in large projects under arbitration, and the boost to spending from the 7th Pay Commission’s award, should improve the industrial outlook,” the RBI said.

“Looks like all the pieces are falling into place. Bravo to the new Governor and the MPC (monetary policy committee) for recognizing that growth is now the priority,” Anand Mahindra, Chairman of M&M, said soon after the RBI governor surprised Corporate India with a 25 basis points cut.

Keki Mistry, VC and CEO of India’s largest home loan firm, HDFC said a good Monsoon, low Inflation and global factors favoured a rate cut. “The policy shows growth to get equal importance as inflation. India Inc is likely to invest in the 2-3 quarters,” said he.

Encouraged by the rate cut, the rate sensitive sectors such as real estate and automobiles are now expecting a bumper festival sales season. “A cut in home loan rates will surely help buyers firm up their decision to buy a house in this festival season and give fillip to sales,” said Rajeev Talwar, MD & CEO of India’s largest real estate firm in market value, DLF.

The real estate sector is marred by falling sales and rising inventories and a rate cut would bring down cost of home buy for customers. “This is an excellent Dussara gift from the RBI to Indian people. We are a growing economy and home buyers depend on home loans to acquire a house. A rate cut would bring the cost of money down and encourage sales,” Vikas Oberoi, CMD of Oberoi Realty, said.

Large corporates said it’s time for banks to pass on the rate cuts to their customers so as to bring down their interest costs. “The banks should pass on the rate cut benefits to corporates and investments would see a pick up as the rates fall,” said Chairman of Vedanta, Anil Agarwal.

CEOs said the RBI has rightly given a boost to growth momentum that has eased off in first quarter. “Liquidity in the system is quite comfortable, and the government has further reduced interest rates on small savings, hence the early transmission of these rate cuts is called for to support the credit growth revival,"  said Harsh Pati Singhania, Vice Chairman & MD of JK Paper Ltd.

The RBI said the indications are positive from across the sectors. In the services sector, the acceleration in the pace of activity in June quarter appears to have been sustained. An increasing number of high frequency indicators are moving into positive territory, construction is boosted by policy initiatives, and public administration, defence and other services will be supported by the pay commission award, the RBI said.