Debt Market Growth To Soften Interest Rates: Vaghul

Industrial Credit & Investment Corporation of India chairman N Vaghul says there are several theories on the subject. One theory was that lending resources were being choked in the banking system.

``Several industrialists have told me that they need short-term funding from banks but were finding it difficult to obtain it, Vaghul told newsmen.

He said it was possible that the recent Supreme Court judgement about bank officers sticking to the word and spirit of their respective work allocation may be one of the reasons.

Pointing out that the Reserve Bank had itself circulated the judgement, Vaghul said bank officers may have turned cautious about sanctioning loan applications.

 

He said he was convinced that lending rates will roll back in the coming months in view of the government decision to encourage the growth of the debt market. The government has recently allowed foreign institutional investors to invest 100 per cent of their corpus in debt instruments instead of the earlier limit of 30 per cent.

The growth of the debt market will push down lending rates and even financial institutions which had to bear the high fund cost will have to lower their rates.

The additional inflow of debt funds will not only bring down rates, it will also be possible for the FIs to raise resources at lesser rates. FI will, thus, be able to afford lower lending rates, he said.