India Inc today demanded more measures from the Reserve Bank of India (RBI) to ease the liquidity crunch, even while welcoming the central bank’s move to cut the Cash Reserve Ratio (CRR) by an additional 100 basis points, its second steepest cut.
“The total amount of liquidity that is required in the banking system is Rs 100,000 crore, according to some estimates,” said Seshagiri Rao, CFO, JSW Steel, a Mumbai-based steel manufacturer.
Chief financial officers (CFOs) of companies, which are in need of a large amount of funds, expect the tight liquidity condition to continue, throwing companies’ borrowing plans in a disarray.
“Banks may still play a safe game and hold on to additional liquidity generated out of this measure,’’ said T S Rangan, group CFO, Srides Arcolab. He also did not anticipate a reduction in the cost of borrowing.
Ravi Ramu, director (finance), Puravankara Projects, urged RBI to cut base rates to boost efficiency. A high interest cost is hurting operating margins and crimping demand, he added.
The Federation of Indian Chambers of Commerce and Industry (Ficci) demanded more measures from domestic regulators as continuous tightening of the monetary policy has resulted in the manufacturing sector losing its tempo.
“Employment-intensive industries like cotton textile, man-made textile, wood, leather and metal products have witnessed a decline in August 2008,’’ said Rajeev Chandrasekhar, president, Ficci.
The Associated Chambers of Commerce and Industry of India (Assocham) demanded a removal of the interest rate cap on NRI deposits. The industry body also said foreign institutional investors (FIIs) should be encouraged to invest in Indian banks beyond the current limit of $10 billion with a lock-in period of one year.
The Confederation of Indian Industry (CII) said the decision to cut CRR would go a long way in injecting additional liquidity into the system, which is the need of the hour. The industry association reiterated its demand of creating a fund for supporting capital markets, raising interest rates on NRI deposits and easing overseas borrowing norms.
“Proactive action from the Indian regulators would ensure that India remains an island of stability even as the financial crisis unfolds in the rest of the world” said Chandrajit Banerjee, director-general, CII.
L K Malhotra , president, the PHD Chambers of Commerce and Industry, said RBI should consider reducing the repo rate from the existing 9 per cent, “This would facilitate the availability of funds with commercial banks at a more affordable rate and would be in line with the global measures to ease the financial crisis,” Malhotra added.
