A missed opportunity, says India Inc on RBI's status quo on rates

Centre and RBI not on same page on boosting economic growth, say CEOs

With the economy lacking signs of a pick-up, company heads say the Reserve Bank of India (RBI) keeping lending rates unchanged is a “missed opportunity”.

The status quo means it will take them more time to start any new projects.

Though the CEOs were expecting the RBI to keep the rates unchanged, they say the corporates are borrowing to complete their ongoing projects rather than taking fresh liabilities.

“This can be described as a missed opportunity -- Indian industry was eagerly waiting for rate cuts which could have given some impetus to the investment climate of the country,” said Prabal Banerjee, President-International Finance of Essar group.

The CEOs say there has been no change in the liquidity ratio as well, which could have been used as a monetary policy tool. 

Corporates expected some rate cuts and say the government and the RBI are not on the same page as far as boosting the economy is concerned. The credit growth has remained very low and is expected to sustain at that level in the foreseeable future. With that view, it will impact equity markets as well, particularly bank stocks will be impacted. The lending to infrastructure will remain on paper. 

"It seems the RBI and the Indian government are not on the same page. While the government is talking about setting up new projects and Make-In-India campaign, the bank interest rates remain very high to make any project viable. It's better to set up projects in other geographies," said promoter of a large firm asking not to be quoted.

“If RBI is waiting for earlier cuts to be translated into lower rates to ultimate customers, then they will have to advise banks suitably and holding back rates may not be useful to induce banks to cut their lending rates. Credit growth would be the worst sufferer and hence, economy will bear the consequences,” said Banerjee.

The RBI policy comes in the backdrop of weak corporate earnings expected for the fiscal 2015 and core infrastructure sector decelerating – in spite of a stable government at the Centre. In February, core infrastructure decelerated further to 1.4%. Coal, electricity and cement contributed to the growth. While the coal index improved from last month, the growth in electricity and cement was due to a favourable base. The contraction in natural gas stiffened, as refinery products, steel and fertiliser growth turned negative in same month.  

“These (industry growth) figures do not augur well for a pick-up in additional growth. We also note that there has been a collapse of incremental bank lending to corporates. Barring a revival of bank lending to corporates, a strong recovery in the investment cycle is unlikely,” said an analyst with brokerage firm, Anand Rathi Research.