 "India Inc wants banks to hasten rate cuts")
Chief executives of companies say they’re restive at banks not passing on the Reserve Bank’s earlier rate cut benefits to their customers.
Resulting, they contend, in subdued consumer spending, stalled projects and low investment in new projects.
“Just about half of the policy rate reduction of 125 basis points (since January, by RBI) has been transmitted by banks till this date. Banks should pass on the entire benefit. A lower interest rate regime will encourage companies to press the pedal on investments and revive industrial growth,” said V N Dhoot, chairman of Videocon Group.
Industrial sector growth accelerated to 6.8 per cent in the second quarter of FY16, from 6.5 per cent in the first. However, the construction sector grew only 2.6 per cent, from 6.9 per cent in the first one. Real estate depends highly on bank loans to customers.
Analysts said spare industrial capacity, heavily indebted corporate balance sheets and limited fiscal room will mean a protracted recovery cycle. In this backdrop, corporate leaders say RBI’s focus on transmission by banks is correct.
V S Parthasarathy, group finance head at Mahindra & Mahindra, said though Tuesday’s absence of rate action was expected, the focus has shifted to restructuring of banks’ base rates (BRs) and transmission of lower rates to the wider economy. RBI has said it would finalise a methodology for determining the BR, based on marginal cost of funds, and that the government was examining the linking of small savings interest rates to market ones. “We look forward to these moves, as these will allow for an improved transmission of repo rate movements into lending rates by banks,” said Dhoot.
Business lobby groups said banks should pass on the full benefits in the form of lower lending rates for both consumers and investors. Of particular concern is demand in rural areas, weakened on account of deficient monsoons.
“The GDP (gross domestic product) numbers released yesterday(Monday) showed an uptick and we are in the early stages of a recovery. However, for the growth momentum to be maintained and strengthen further, the investment cycle will have to be supported by all measures. The government has already taken the lead by front-loading public investments and enhancing the ease of doing business. A lower interest rate regime will fortify these efforts and support revival of domestic private investments,” said A Didar Singh, secretary general of business chamber Ficci.
