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Credit Policy: Mixed reactions from chambers

BS Corporate Bureau in New Delhi

The Federation of Indian Chambers of Commerce and Industry said: "The mid-term review of monetary and credit policy is marked with caution.

RBI wishes to keep a check on the inflation rate, which is likely to go awry due the drought like condition in several parts of the country and the pressure on oil price."

This falls short of industry expectations, which was hoping a one percentage points reduction in view of the prevailing low inflation rate and comfortable forex reserves, the chamber said.

PHDCCI president Arun Kapur said that taking into consideration the poor rainfall in the country and the RBI also revising the GDP rate downwards, the policy should have reduced the bank rate at least by 100 basis point.

The reduction of bank rate by 25 basis points will have almost negligible impact on the cost of funds which is still very high as compared to international levels.

Assocham president RK Somany said that in spite of the existing low nominal interest rates, the real interest rates in the economy are still high and the credit off-take is low. Thus, though it is a move in the right direction, the present reduction both in bank rate and the cash reserve ratio by 25 basis points alone will not have the desired effect.

The proposal of improved credit delivery system is what the industry will be looking to for removing the paradox between excess reserves with banks and lack of availability of funds.

The Confederation of Indian Industry, however, said, "The busy season credit policy reiterates RBI's commitment to facilitate a softer interest rate regime".

Its president, Ashok Soota said: "Coming on the heels of a 50 basis point cut in the CRR in the slack season credit policy in April, a further 25 basis point is welcome".

Assocham complained that no measure was announced to reduce the transaction cost, which is very high compared to international levels. RBI should have prescribed maximum ceiling on export interest rate in absolute terms instead of linking the same with prime lending rate.

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