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Business chambers hails policy, hopes economy will pick up

Business organisations have welcomed the credit policy and said it would help in stemming the recent slowdown in industrial activity.

Describing it as historic and reflective of a new approach by the RBI, the Confederation of Indian Industry said the policy would stimulate demand, encourage credit offtake, help revive the dampened industrial activities in several sectors, and bring a fresh wave of enthusiasm into the market.

CII president N Kumar called the policy friendly for investments, exporters and industry in general.

The reduction in bank rate from 10 per cent to 9 per cent, deregulation of interest rates, cash reserve ratio cut from 10 per cent to 8 per cent, preshipment interest rate cut from 13 per cent to 12 per cent, simplification and rationalisation of post-shipment rupee export credit, simplification and rationalisation of statutory liquidity ratio, freedom and autonomy to banks, would ensure flexibility and release the much-needed lendable resources for deployment in the productive sectors to finance growth, expansion, modernisation and exports.

Kumar said the move to grant autonomy and freedom to banks on a number of issues such as margins on loans and interest rates of prime lending rate for term loans would enable bankers to take commercial decisions, streamline and improve their credit delivery system and their bottomlines.

''The RBI governor used the busy season credit policy as an excellent launching pad to forge ahead with the first phase of capital account convertibility,'' Kumar said.

The freedom granted to the project exporters for executing projects abroad and the corporates to open offices abroad without RBI approval, permission to exporters and exchange earners to retain 50 per cent of the exchange earnings in export earners's foreign currency accounts, as also provide credit/non-credit facilities to Indian joint ventures/wholly-owned subsidiaries abroad would greatly facilitate and promote exports, joint ventures, and foreign exchange earnings.

The housing sector, Kumar added, would get a real fillip with the permission to banks to finance at 1.5 per cent below prime lending rate. This will have a multiplier effect on the demand for cement, steel and downstream industries.

The commercial vehicle sector which had been experiencing a slowdown will get a boost with the increase in the number of vehicles from six to 10 under the priority sector lending, Kumar said.

Revival of bridge loans to companies against future equity issues was another attempt to revive the primary market. However, with delayed projects and poor quality of issues, banks may be very conservative before venturing into this area, he said.

Kumar particularly lauded the RBI's new approach to addressing the complaints of the small-scale industry units with regard to the settlement of dues.

Another significant feature was the deregulation of the interest rates and rationalisation and restructuring of the lending rates. This, Kumar said, would ensure closer integration of debt, credit and money markets.

However, Kumar observed that with inflation ruling below five per cent, the rate of interest could have been cut further. In the backdrop of business slowdown, low confidence, poor credit offtake and low margins, the laudable measures unveiled in the credit policy, the CII chief said, was bound to boost the depressed capital market, encourage consumption thus fueling industrial and economic growth.

The PHD Chamber of Commerce and Industry said various policy measures with emphasis on financing the growing needs of trade and service sector as well as infrastructure projects, housing, auto finance and export credit were welcome features that will boost demand.

The deregulation of interest rates on domestic term deposits and facility to banks regarding foreign currency non-resident (banks) accounts will inject necessary competitive spirit amongst the bankers, said PHDCCI president Binay Kumar.

However, he said, the reduction of pre-shipment export credit should have been by two per cent instead of one per cent to boost exports.

Also, the RBI has not given any scheme to help the functioning of non-banking financial companies although some relaxation has been provided for leasing and higher purchase, he said.

The liberalisation of capital account by increasing the limit of EEFC account up to 15 per cent, delegation of powers to authorised dealers for executing projects abroad, freedom to corporates to open offices abroad and other measures for supply of credit to Indian joint ventures are deserving features.

Although the credit policy is growth-oriented and demand generative, Binay Kumar said bankers need to shed their fear psychosis. The RBI and the government should protect bonafide credit decisions to remove industrial and capital market sluggishness besides boosting exports, he said.

In Calcutta, Indian Chamber of Commerce President Gaurav Swarup on Tuesday said the policy was in continuation of the thrust given by the RBI this year.

Complimenting the RBI for carrying on with the process of lowering interest rates and allowing greater freedom to the banks, Swarup hoped the banking sector would respond more positively towards meeting the working capital needs and term loans of the corporate sector.

He welcomed the policy measures which, he said, would release larger lendable resources for the banking sector and would also encourage borrowers, particularly, in the small and ancillary sectors. The lowering of pre-shipment export credit was a timely measure and would encourage greater exports from the country, the ICC president observed.

The reintroduction of bridge loans was an important step towards channelising bank finance to the productive sectors of the economy, Swarup pointed out. "This was long overdue and will enable a large number of industrial units to meet their credit requirements," he felt.

The steps initiated in the credit policy to liberalise the capital account was a move in line with the recommendations of the Tarapore Committee and would help in gradual integration of the Indian economy into the world economic order, Swarup said.

RELATED REPORTS:
RBI cuts interest rates to boost growth
Policy will boost production, says governor
Bid to widen investors' participation
Finance minister hopes credit flow will improve

EXTERNAL LINK:
The Reserve Bank of India busy-season credit policy

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