Industry pushes RBI to end rate hikes, focus on growth
Oct 21 2013 , Mumbai
Makes a case for cheaper loans, longer repayment cycle
On the flip side, RBI also has to keep liquidity conditions tenable so that credit for productive sectors is not stifled.
Industry bodies, which met the RBI top brass on Monday, asked them to enhance bank funding to the infrastructure and real estate sectors to fuel economic growth. They also suggested the launch of municipal bonds to fund infrastructure projects.
In the pre-policy meet with RBI governor Raghuram Rajan, deputy governors and select executive directors, industry associations Ficci, CII, Assocham and the SME Chamber of Commerce demanded lower interest rates and sufficient liquidity. Rating agencies Crisil and Icra also attended the meeting.
The thrust of the meeting was on the asset quality of Indian companies, especially those in infrastructure, commercial vehicles and small-medium enterprises (SME) segments. Commercial vehicle loans have been hit as capital cycles get extended, cash flows are getting impacted because of the demand slowdown, and capacity use has come down, impacting companies’ profitability and repayment capacity.
The SME segment requested RBI to direct the banks to lend at 10 per cent and increase the repayment schedule from 90 days now to 180 days before a loan is classified as a non-performing asset.
They asked RBI to encourage manufacturing so that India could achieve higher growth. The SME sector, however, demanded that the thrust should be on them, as they form the backbone of industry. The SME chamber suggested RBI to develop an electronic platform so that payment dues to the sector — both from industry and government agencies — were settled within 30 days.
Chandrakant Salunkhe, president of the SME chamber, who attended the meeting, said, “SMEs should be encouraged with cost-effective loans and better repayment cycles. The electronic repayment platform is an infrastructure that RBI should set up. The SME chamber will offer all support for this.”
Industry participants also requested RBI to develop the corporate bond market by allowing more participants and letting insurance companies to invest in investment grade paper. “For liquidity purposes, we want a deeper bond market where there are plenty of primary issuances and an active secondary market to sell these bonds,” said another participant.
Assocham in a release said it submitted a 10-point agenda for RBI, which included easing of interest rates, liquidity, revising infrastructure growth and providing an impetus to investment. Widening of the financial market to develop a municipal bond market for funding urban infrastructure was also suggested.
Among other suggestions were easing interest rates and liquidity, reviving infrastructure growth and providing impetus to investment, liberalising financial markets, augmenting capital flows and facilitating more export credit.
A CII release said it sought support to the infrastructure sector. For this, CII urged RBI to consider forbearance for the financing that has already been made available to the sector.
Sanjay Ubale, MD and CEO of Tata Realty and Infrastructure, told Financial Chronicle that banks saw all funding requirements in same light. For them there was nothing like long-term funding other than priority lending.
“Infrastructure growth cannot happen unless long- term funds are made available at cheaper rates. Top companies like the Tatas are getting loans at 12-13 per cent and smaller companies at 14-15 per cent, which makes projects unviable in the long term. RBI needs to look at the critically important sectors separately. Infrastructure should be treated on par with agriculture with provisions for cheaper and long duration funds,” said Ubale.
A Subbarao, CFO of the RPG group, believes that the government should have a subsidised pool of credit for infrastructure and other sensitive sectors.
“A refinance facility should be opened at lower rates for banks so that they can refinance the projects at cheaper rates. Besides, all provident fund money should be used to finance infrastructure projects; the money now goes to reduce fiscal deficit.”
He added: “It should be made mandatory to generate a long-term savings pool to be used for infrastructure and priority sector funding alone. The government should raise funds abroad to reduce fiscal deficit: 90 per cent of insurance and provident fund money that goes to reduce fiscal deficit should be used to fund long-term projects.”
Prabal Banerjee, president for international finance at Essar Services India, said margins were already under pressure and companies would not be able to service their debt if this issue was not addressed. “For the same reasons, the debt repayment cycle should best be ended so that no default took place.”
Following RBI’s restrictions on and negative weight given to real estate sector, several banks have stopped funding property developers and made credit prohibitively expensive for them.
These companies are now upbeat over the Securities and Exchange Board of India’s (Sebi) draft guidelines to set up real estate investment trusts (REITs), which, they believe, will result in increased supply of cheaper credit.