ASSOCHAM

INDUSTRY/MEMORANDUM

ASSOCHAM submits 10 point memorandum 

to RBI urging to cut key policy rates ahead 

of Q2 monetary policy review

The Associated Chamber of Commerce and Industry of India (ASSOCHAM) has submitted the 10 point memorandum to Dr. D. Subbarao, Governor, RBI to bring down the key lending rates to boost investment and perk up the business sentiment at a pre-consultation meeting for review of monetary policy by the delegation led by Mr Rajkumar Dhoot, president ASSOCHAM in Mumbai today.

“In wake of the bold steps initiated by the government from cutting down fuel subsidy, permitting foreign direct investment (FDI) in multi-brand retail to positive response on revisiting the general anti-avoidance rules (GAAR), there is no reason for the RBI to hold back key policy rate cuts any longer as the fiscal consolidation seems to have begun,” said Mr Dhoot, who along with Ms Sudha Ravi, co-chairperson of the chamber’s Banking Council submitted a 10-point memorandum to the RBI chief.

“Though a cut in the cash reserve ratio (CRR) brings down the cost of funds for commercial banks but reduction in repo rates not only stimulates the market sentiments but builds confidence amid investors,” said the ASSOCHAM president while pitching for a cut in the key policy rates.

In its memorandum, ASSOCHAM has stressed upon the need for restructuring considering the growing build up of non-performing assets (NPAs) which was about 2.9 per cent gross as on March 31 together with huge piling up of stressed assets.

“Liberal terms together with relief on interest rates would help the industry to see through these difficult times,” said ASSOCHAM. “Compassion with circumspection is the need of the hour to solve these issues as a slow growth in the gross domestic product (GDP) along with stress being observed in certain sectors along with cases referred under the corporate debt restructuring (CDR) may spoil the party in the current year.”

Taking up the cause of small and medium enterprises ASSOCHAM has recommended the apex bank to increase the NPA recognisation period for non-payment of interest or an installment by about a month’s time. Besides, in its memorandum the chamber has also pitched for floating an immediate exit policy to provide them an equal opportunity with large players.

“Select bank branches be allowed to buy and sell government securities to expand the reach and dept of the same as they provide security and safety of principal amount and the interest as an alternate to investment in gold and other related instruments,” said ASSOCHAM.

ASSOCHAM has also urged the RBI to immediately issue its final guidelines for issuance of new banking licences to private entities who have evinced interest in entering the banking sector.

Further, with a view to deepen the debt market, ASSOCHAM has recommended that a certain part of term borrowing for corporate be raised through bonds or debentures and only balance be provided through bank loans once the appraisal is done by the bank.

“In fact, a part of the loan assets can be securitized to be traded on stock exchanges to give impetus to retailers and boost the debt markets which may initially be of PSU corporate,” highlights the ASSOCHAM memorandum.

Besides, the government should revisit issues like 100 per cent hedging and cap on external commercial borrowing (ECB) loans which should not exceed 50 per cent of net worth to make them cost effective.

ASSOCHAM has also called for incentivizing exports and cutting down on imports by local substitution and dismantling subsidies in wake of the upward spiraling external debt.

To encourage home-ownership for women, ASSOCHAM has pitched for providing an appropriate interest subsidy under the priority sector housing loans and urged the government to categorize housing finance companies (HFCs) as a separate NBFC. Besides, the NBFCs must also be allowed to raise ECBs.

Apart from this the government should treat the indirect finance by banks to HFCs for onward lending to individuals up to Rs 25 lakh and Rs 15 lakh in metros and other centres respectively.

To facilitate the government’s agenda of affordable housing, ASSOCHAM has urged that commercial banks be permitted to advance additional funds to real estate developers as the costs have sky-rocketed due to persistence of high inflation.

Besides, ASSOCHAM has also said that limited liability partnerships (LLPs) must be allowed to undertake activities through registration with the RBI under a pre-condition. Similarly, micro-finance NBFCs may also be allowed to reconstitute as LLPs to encourage larger participation for inclusive growth.