RBI slashes repo rate: Big relief to small businesses but more support needed; move to revive demand, say industry bodies

The RBI’s announcement to slash repo rate to the lowest levels since 2000 is expected to give the much-expected relief to the small businesses besides boosting the demand, according to industry bodies. The Reserve Bank of India (RBI), in a surprise move on Friday, cut key interest rates by 40 bps to 4 percent in a bid to revive the economy which has adversely been hit by coronavirus pandemic. The industry bodies said that more support will be required on an ongoing basis both from the RBI and government to stimulate economic growth amid the COVID-19 pandemic, reported PTI. The central bank slashed the benchmark interest rates and extended the moratorium on repayment of loans for three months till 31 August to ramp up support for the economy which is likely to contract for the first time in over four decades. The benchmark repurchase (repo) rate was cut by 40 basis points to 4 percent, the lowest since the benchmark came into being in 2000, RBI Governor Shaktikanta Das said. [caption id=“attachment_2648484” align=“alignleft” width=“380”] Representational image. Reuters.[/caption] CII Director General Chandrajit Banerjee said the RBI should also consider extending this moratorium to NBFCs for their repayment to banks, without which the NBFCs sector is facing acute distress. “Another move the RBI should consider is to allow one-time restructuring of loans to relieve stressed businesses. Group exposure limit for lenders to corporates to 30 per cent from 25 per cent is a welcome move too, as it is expected to help banks meet the borrowing requirements of the private sector,” Banerjee stated. FICCI President Sangita Reddy said, “With the outlook for economic growth being very uncertain and RBI itself admitting that GDP growth in the current fiscal will be negative, FICCI feels that more support will be required on an ongoing basis both from RBI and government and we shall remain engaged and keep providing feedback on behalf of Indian industry to the policymakers and regulator.” Mandar Pitale, Head - Treasury at SBM Bank (India), said the accommodative stance by the central bank is a further indication that it will not shy away from fiddling with interest rates going ahead, depending on the data. “With job losses mounting and economic activity showing little signs of improvement due to the raging coronavirus scare, the move to extend the loan moratorium period should provide respite to individuals and small businesses,” Pitale added. Assocham President Niranjan Hiranandani said, “RBI’’s third presser since the lockdown is a continued effort to increase private consumption and provide liquidity access to all sectors hit by the COVID-19 pandemic. These measures will help revive demand crippled by the lockdown.” Rate cut benefit should be passed on to customers: Realty sector Real estate developers said the RBI needs to take more steps, such as one-time debt restructuring of builders loan, to provide relief to the industry which has been hit badly by the lockdown. The RBI needs to ensure that banks pass on the benefits to customers , they said. The industry hailed the extension in the moratorium on loan repayment but felt it was not enough. Click here to follow LIVE updates on coronavirus outbreak “The advantages extended by the RBI through reducing the repo rates are not being passed on by the banks to the customers. The series of reduction in policy rates will help all sectors including real estate which is hit by the contraction in demand and liquidity squeeze caused by the COVID-19, said CREDAI national chairman Jaxay Shah. “However, we are hoping for quick transmission of these actions in banks’’ respective lending rates,” he said. Textile bodies welcome RBI decision Indian Texpreneurs Federation (ITF) on Friday thanked the RBI for extending loan moratorium to six months which would help textile industries manage cash flow towards re-starting businesses during the post-COVID-19 times, reported PTI. Conversion of deferred interest as a one-year term loan would also help the companies manage the liquidity and speed up the revival process because every rupee is important now to streamline post-COVID business operations, ITF convenor Prabhu Dhamodaran said in Combatore, Tamil Nadu. Tirupur Exporters Association (TEA) also thanked RBI for reduction of the policy repo rate by 40 basis points from 4.40 percent to 4 percent with immediate effect. Repo rate cut progressive: SICCI The Southern India Chamber of Commerce and Industry (SICCI) said that RBI’s announcement to cut repo rates and extend moratorium is ‘‘progressive’’ and focuses more on developmental and regulatory policy measures, reported PTI. RBI slashing of repo rates by another 40 basis points from 4.4 percent to 4 percent and simultaneous reduction of reverse repo rate to 3.35 percent would ease liquidity, said R Ganapathi, president of SICCI, dubbed as one of the oldest trade bodies in Chennai. “The rate cut will not only send out positive signals but will also compel banks to lend more”, he said. --With PTI inputs