CEOs have complained that high interest rates have blocked their investment decisions. At the same time, customers are also deferring their purchases for new consumer durables, cars, and homes.
With the Reserve Bank of India (RBI) slashing the benchmark repo rate for a fourth straight time, India Inc on Wednesday said it was time banks passed on the benefits of rate cuts to end-customers, so as to encourage consumer spending and spur investment by companies.
The central bank has lowered the key policy rate by a cumulative 110 basis points (bps) in the current easing cycle - bringing the rates to a nine-year low.
Meanwhile, banks have cut rates by only 29 bps.
“The RBI's step was absolutely necessary for reducing cost of capital more in line with inflation expectations.
"This will certainly motivate the supply side and drive consumption.
"But what is important is that the banks must transmit the rates and start taking risks.
"India Inc will certainly step up investments if they get good rates and return on risk capital," said Sanjay Nayar, CEO of KKR India.
Others concur. “With the current slowdown and challenging global environment, there are multiple vectors that need to come into play for the economy to reach its previous growth rates and a rate cut is one of them,” said Rashesh Shah, chairman & CEO, Edelweiss.
While rural India has seen some slowdown of late, the initiatives for priority sector lending are encouraging.
“However, based on how the global and domestic economy pans out, we might need even more forceful measures, including further rate cuts,” added Shah.
Mahindra & Mahindra’s Group CFO V S Parthasarathy said the RBI has given clear commitment to keep the banking system flush with liquidity.
“This should enable monetary transmission, thereby making this rate cut a cut above the rest,” said Parthasarathy.
CEOs have complained that high interest rates have blocked their investment decisions.
At the same time, customers are also deferring their purchases for new consumer durables, cars, and homes.
The RBI confirmed on Wednesday that tractor and motorcycle sales - indicators of rural demand - continued to contract, while passenger vehicle sales declined for the eighth consecutive month in June.
However, the RBI said domestic air passenger traffic growth turned positive in June after three consecutive months of contraction.
Commercial vehicle sales slowed even after adjusting for base effect.
Construction activity indicators sla