Indian Inc hails rate cut, hopes for transmission to consumers

India Inc on Thursday welcomed the 25 basis points (bps) cut in repo rate and hoped for adequate transmission to the end consumers.

The industry players were also positive about the change in stance by the Reserve Bank of India from "neutral" to "accommodative". 

The lending rate now stands at 5.75 per cent. This was the third consecutive repo rate cut in 2019.

Welcoming the rate cut Sandip Somany, President, FICCI said: "We further hope that this third consecutive rate cut in repo rate will lead to effective transmission, encouraging banks to lower their lending rates for both retail and corporate credit. As of date, transmission has remained weak and ineffective largely due to tight liquidity conditions."

Somany, however, noted that there was room for further reduction in repo rate. 

"At the same time, the RBI may also consider lowering the reverse repo rate to improve liquidity. The RBI should continue the accommodative stance in the coming months," he added. 

Assocham President B.K. Goenka said: "The 25 basis points cut in the benchmark lending rate by the RBI is a welcome measure. Equally significant is that the central bank has shifted its stance from 'neutral' to 'accommodative'. These measures would rekindle economic growth and improve business sentiments." 

Goenka added that the credit policy resolution and the RBI Governor's emphasis on faster and higher transfer of rate cuts would be reassuring if done by the banks.

PHD Chamber of Commerce and Industry in a statement said that while common man would benefit from the softening of EMIs on loans, the ripple effect of the rate cut would enable small businesses to fulfill their credit requirements.

"At this juncture, the transmission of the policy rate cut by the banking sector in terms of reduced lending rates would be crucial to boost liquidity, induce demand and industrial growth in the country," it said, adding that continuation of the rate cut would be crucial to help the demand stay intact, enhance sentiment for investments and expanding production capacities.

Chandrajit Banerjee, Director General of the Confederation of Indian Industry (CII) said that the sequential reduction in repo rate by 25 bps provided a boost to economic activity. 

"The rate cut indicates that the central bank is working to arrest the slowing growth momentum at a time when the inflation footprint remains benign," he said.

Chairman of the country's largest bank, the State Bank of India (SBI), Rajnish Kumar, also hailed the rate cut and the change in stance. He said the other decisions, to lower the leverage ratio for banks and consideration of on-tap licensing for small finance banks too were positive developments.

"On the regulatory front, the decision to lower the Basel-III Leverage Ratio will augment the lendable resources of the banks. Also the move to scrap transaction charges for RTGS and NEFT will boost digital transactions. The decision to issue draft for 'on-tap' licensing of small finance banks will add depth to this sector," Kumar said. IANS