ASSOCHAM Requests RBI to Reduce the Repo Rate by 0.25% and transfer the Benefit to Borrowers

Tuesday, March 26, 2019
 ·         Requested permission to raise ECB by borrowers to ease liquidity issues

Mumbai, 26 March 2019
: In a bi-monthly meeting with Mr Shaktikanta Das, Hon’ble Governor, Reserve Bank of India, Mr BK Goenka, President ASSOCHAM, discussed a number of topics and concerns which included aligning the repo rate with the consequent rate cut in order to pass the rate cut benefit to the borrowers. The meeting also saw discussions on the External Commercial Borrowing (ECB) Guidelines – End Use restriction, NBFCs inability to fund Projects and Infrastructure Financing.

Mismatch in Repo Rate Cut and Consequent Cut in MCLR/PLR

Since August’18, Repo rate has reduced by 0.25% whereas the MCLR has increased by 0.30% to 0.40% and in case of NBFC the same has increased in excess of 0.75%. This increase in MCLR, despite a reduction in repo rate, has increased the cost of borrowing.

ASOCHAM requested RBI for taking necessary steps for passing on the repo rate cut benefit to the borrower, Further cut in repo rate by 25 basis points, support overall economic and industrial growth.

External Commercial Borrowing (ECB) Guidelines – End Use restriction

As per New ECB framework per Fifth Bi-monthly Monetary Policy Statement for 2018-19 released on December 5, 2018, The End uses does not include Repayment of Rupee loans except from foreign equity holder

The Regulation restrict even borrower having net positive US$ revenue, to raise funding through ECB for refinancing their rupee term loan.

With existing liquidity conditions and limited Capital adequacy available with the Indian Banking system, permission for raising ECB by borrower having net positive US$ revenue for last three years to refinance rupee term loan may be looked into. This will not only ease liquidity pressure on the Banking industry but also help Borrower to raise competitive funding from International market.

NBFCs inability to fund Projects

NBFCs have emerged as an alternative to fund viable projects, however in the last few quarters NBFCs have found it difficult to maintain the same credit lines with the banks and had to repay all the short term borrowings from money market and mutual funds thus their ability to finance has reduced significantly thereby virtual halt in their onward lending.

ASSOCHAM requested RBI support in taking necessary steps to ease liquidity and restore confidence in the Financial Market
Infrastructure Financing

Infra, backbone of the economy, finding it difficult to fund new projects due to limited availability of Capital & liquidity with the Banks/NBFCs and Bank’s sectorial limits.

ASSOCHAM requested RBI to ease funding for Infrastructure Project, including reduced capital adequacy to enable banks to fund infrastructure projects. The apex body also stressed on enhancing opportunities for refinancing, takeout finance and credit enhancement by expanding capital base and operations of India Infrastructure Finance Company Ltd (IIFCL) and National Infrastructure & Investment Fund (NIIF).

ASSOCHAM also elaborated and discussed other important points such as Easing Liquidity for the Micro Segment of MSMEs, Revised Framework on Resolution of Stressed Assets – RBI Circular issued on February 12, 2018 and the need for a separate class of wholesale and long-term financing bank (WLTF) akin to term lending financial institutions which existed before as proposed in the RBI Discussion Paper released in May, 2017.
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