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Bankers expect RBI to lower interest rates
Binny Sharma
New Delhi
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M Narendra, chair Indian Overseas Bank (L), RN Dhoot President (C), RC Khurana, general manager (second R), Bank of India, Mukesh Mohan, Co-chair (R), at an ASSOCHAM meet in New Delhi
Photo: Naval Hans |
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HIGH INFLATION and tapering of demand in interest-sensitive sectors amid gloomy global macro-economic conditions are not conducive for raising low-cost funds, said M Narendra, chair and managing director of Indian Overseas Bank on Thursday.
He said that liquidity in the market has been tight in spite of cash reserve ratio being cut from 5.5 to 4.75 per cent on March 10.
While the MSME sector continues to struggle for bank credit, repo rates should be reduced further to bring down cost of borrowing, encourage investments and boost growth” said Narendra while addressing a workshop organised by ASSOCHAM.
Narendra said the economy needs to kick start the investment cycle. Bankers, at the same time, should reach out to rural areas to ensure that savings go beyond gold and real estate in formal financial instruments.
Most of the bankers attending the workshop hoped that the Reserve Bank of India (RBI) will lower interest rates in its forthcoming monetary policy review to help ease credit flow to micro, small and medium enterprises (MSMEs) as high cost of funds in the past two years has dented their competitiveness.
AK Gupta, executive director of Canara Bank, said the government should provide two to three per cent interest subvention for MSMEs for at least three years as they contribute 45 per cent to industrial production and 40 per cent to exports.
It is one of the most crucial sectors of Indian economy, employing 60 million workers and producing more than 6,000 quality products. “MSMEs are a major source of entrepreneurial skills and innovation. Their contribution of 17 per cent towards gross domestic product last year is expected to increase to 22 per cent in 2012.”
RC Khurana, general manager at the Bank of India, said there are 30 million MSME units in India and 12 million people are expected to join the workforce by 2015. He said banks should encourage cluster-based lending approach and extend the credit period beyond seven years.
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