Cost of capital will be high so long as there is volatility in equity market: MoS for Finance, Jayant Sinha

Jayant Sinha, Minister of State for Finance, Government of India, said that an alternative way to look at how the cost of capital could be brought down would be to look at how well the financial system is working in India, which in turn is linked to the health of the Indian market as a whole. Sinha was speaking here at the India Economic Convention 2015, organised by India Foundation and International Chamber of Commerce (ICC), whose India Chapter is an allied body of FICCI.

The financial system works well for large businesses, he said, adding that large companies get fairly reasonable rates in India. He referred to major government initiatives, such as, the financial inclusion programme -- Jan Aadhar Yojna, which the minister said has brought millions of people into the financial system. Fifty-five percent of the accounts opened under the Jan Aadhar Yojna have a balance now. This has led to about $3.5 billion flowing into the financial system.

He also said that the private banks have done well in the country but the public sector banks are facing challenges in term of how they are managed and on account of their NPAs. To give an impetus to the public sector banks, he said, We are providing the governance framework and providing the banks with operational autonomy.

The minister cautioned that if the Indian equity market continues to be volatile, the cost of capital will be high. He said the government has allowed pension funds to put 5 per cent of their money into the equity market, which can eventually be increased to 15 per cent, to bring some stability in the capital market.

Referring to financing of MSMES, he cited the instance of Mudra Yojna as one of the first steps the government has taken to address this issue.

Naina Lal Kidwai, Executive Director on the board of HSBC Asia-Pacific and Chairman India, HSBC, pointed out some of the structural issues saying that although the RBI has brought down the interest rate by 75 basis points but the transmission rate is quite low.

She said that it takes approximately 18 months for the deposits to reach the beneficiaries under the current system.

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