Full-Year Credit Policy Is Needed, Says Chamber

The Phd Chamber of Commerce and Industry (PHDCCI) has called for a pro-active, positive and radical credit policy with a view to generating demand and encouraging investment and forex inflows for the full year.

A full year credit policy is needed in the present liberalised and competitive environment as the half-yearly announcement has lost its importance.

A flexible and pragmatic credit policy for the full year will ensure adequate credit availability at comparable cost to all the productive sectors of the economy.

The chamber said it is concerned over the slowing down of the economy, sagging exports, continued sluggishness in the capital market and sectoral recession. Also poor credit off take from he banking system and deceleration in new investment activity is adversely affecting the growth process.

In this context, the chamber has urged the bankers and foreign institutional investors to shed their hesitancy and fear psychosis for financing trade and industry and new infrastructure and greenfield projects.

It has suggested lowering the lending rate by at least two per cent.

Also, deposits interest rates should be completely deregulated to bring required competition.

FCNR(B) deposits should be fully freed and NRI deposits rates made more attractive for one year and over for increased forex inflows.

In the case of exports, prevailing interest rate of 13 to 15 per cent is far higher than current are of seven to eight per cent in most of other countries.

Interest rate for export credit should be brought down to enable exporters to compete on equal terms.

Interest for export credit needs to be pegged at nine per cent upto 90 days and 11 per cent from 91-180 days. Overdraft interest may be two per cent charged from the date it became due.

Banks are not financing the stocks of stores and components meant for export production under the packing credit facilities. Credit policy should address this matter.

Financing of infrastructure and exports should be categorised under priority sector. Special financing schemes for software be introduced with refinancing facility from RBI norms for promoters contribution, debt-equity ratio and appraisal system be changed for infrastructure and software financing.

Banks limit for overseas borrowing needs to be increased to 15 million dollars without any conditions for the end use of funds and banks be permitted to negotiate or tie up lines for credit for and syndication of loans at international rates for financing domestic needs or exports and for assisting SSI sector.

The distributive trade/ marketing/warehousing and service sector bank financing should be encouraged under the guidance of RBI and refinancing scheme be introduced.

Banks should earmark certain percentage of funds for these sectors and RBI should monitor the chamber proposes.