Industry captains Thursday urged the Reserve Bank of India [Get Quote] to take further steps, including a cut in the reverse repo rate, to encourage banks to increase the flow of cheap funds, especially to units battling with a slowdown in demand and cash flow problems.

After attending a meeting in Mumbai on Thursday with RBI's top brass headed by Governor D Subbarao, Harsha Pati Singhania, president of the Federation of Indian Chambers of Commerce and Industry, said that the real rate of interest remained in double digits despite inflation having declined sharply.

The non-food credit growth has dipped to 18 per cent, which is much below the targeted growth figure of 24 per cent set by the RBI.

"Given the present interest rate structure and the inflation rate, real rate of interest is still in double-digits. With the near-zero rate of inflation, the real and nominal rates of interest are almost at the same level," another industrialist who had attended the meeting said.

In other countries, particularly in the developed economies of the West as well as in other emerging economies, the real interest rates are much lower and highlight the interest cost differential.

'Banks must, therefore, cut their prime lending rates further and bring the interest rates to single-digit levels,' Ficci said.

Making a case for a further cut in reverse repo rate, the industry leaders pointed out that banks are parking huge funds through the reverse repo window. A further cut in reverse repo rate may ensure that India Inc's funding needs are met in a seamless manner and at appropriate rates.

'If interest rates cannot be brought down across the board, then the government can perhaps consider offering interest subvention to sectors like automobiles, housing and consumer durables,' they said.

Ficci also said that, in order to ensure that adequate funds are flowing into the infrastructure space, the government and the RBI should open a refinance window for banks.

'This facility will help banks to disburse loans at competitive rates in the infrastructure space. This, in turn, will enable infrastructure service providers to ensure adequate low-cost funding to their projects, thereby increasing their viability,' it pointed out.

The federation added that this refinance could either be by way of a simple refinance at lower rates from the government or the RBI so that the banks can lend at very competitive rates, or by way of interest subvention.

'A new line of credit for commercial vehicle funding should also be created to help boost the commercial auto segment, which is under a high level of stress currently,' Ficci added.