Bankers today hoped the Reserve Bank of India will lower interest rates in its forthcoming monetary policy review to help ease credit flow, say a report from Associated Chambers of Commerce and Industry of India.
In the last two years, high cost of funds has dented competitiveness in the small and medium enterprises sector, bankers said. High inflation and tapering of demand in interest-sensitive sectors amid gloomy global macro-economic conditions are not conducive for raising low-cost funds, says the report quoting Mr M. Narendra, Chairman and Managing Director of Indian Overseas Bank.
“Liquidity in the market has been tight in spite of cash reserve ratio being cut from 5.5 to 4.75 per cent on March 10. While the MSME sector continues to struggle for bank credit, repo rates should be reduced further to bring down cost of borrowing.” The economy needs to kick-start the investment cycle. Bankers, at the same time, should reach out to rural areas to ensure that savings go beyond gold and real estate in formal financial instruments, Mr Narendra said.
Mr A.K. Gupta, Executive Director of Canara Bank, said the Government should provide 2-3 per cent interest subvention for MSMEs for at least three years as they contribute 45 per cent to industrial production and 40 per cent to exports.
Mr R.C. Khurana, General Manager, Bank of India, said banks should encourage cluster-based lending approach and extend the credit period beyond seven years.
Mr Rajkumar Dhoot, President of Assocham, said banks need to promote non-traditional proposals and enable MSMEs become globally competitive in terms of product quality and product positioning.