RBI rate cut to drive growth, banks must follow suit: India Inc

New Delhi: India Inc today said the Reserve Bank's move to cut interest rate by 0.50 per cent is "pro-growth" and exhorted banks to transmit the lower interest rate to borrowers to revive demand and kick-start the investment cycle. CII Director General Chandrajit Banerjee said, "Industry is happy that the RBI has finally recognised the weakness in underlying economic activity and the need for a reduction in borrowing rates to drive a recovery. "Today's action by the RBI has removed considerable uncertainty with regard to the direction of borrowing costs faced by industry. The corporate sector will now be in a better position to drive a recovery in investment and growth." 

Yes Bank MD & CEO Rana Kapoor said that amidst easing inflation and lowered growth projection, the reduction in policy rate will help to reinforce the structural policy reforms of the government, allowing an investment-led job-creating revival in consumption demand. Assocham Secretary General D S Rawat termed the Reserve Bank's move to slash key rate a "pleasant surprise" and said Governor Rajan has delivered a Diwali bonus.

"What is even more heartening is the kind of resolve by Governor Dr Raghuram Rajan to work with the government and ensure that the banks pass through the rate cut without delay. "As much as 125 bps interest rate cut has been announced since January this year. The ball is certainly in the court of the banks, which must now rise to the occasion," said Rawat. In a big boost to the economy and borrowers, the Reserve Bank today cut interest rate by 0.50 per cent and relaxed norms for home loan seekers.

Associate Managing Director at Moody's Investors Service Atsi Sheth said the move to slash interest rate suggests that the RBI sees underlying growth trends as subdued enough to require more aggressive stimulus, given the rising external headwinds to growth. It also suggests that the RBI does not view inflation as a key risk at this point of time.

However, engineering exporters' body EEPC India's Chairman Anupam Shah said a special carve-out is required for exporters who are in a state of distress. "EEPC would urge the RBI, the Finance Ministry and Commerce Ministry to work together with the exporting community so that they can be given a carve out of interest subvention of a minimum two per cent at least till the situation takes a turn for the better," Shah said.

"Exports from the country have been falling sharply, resulting in low capacity utilisation across sectors. In this scenario, investments cannot be expected to pick up without a significant reduction in interest rates," said Banerjee.