Knitwear industry here feels let down by the Reserve Bank of India as the apex bank decided to keep the short-term bank rates same in the latest monetary policy statement.
The RBI had kept the ‘repurchase rate’ under the liquidity adjustment facility (LAF) at 7.5 per cent and decided to maintain the cash reserve ratio of the scheduled banks unchanged at 4 per cent of net demand and liability based on “an assessment of current and evolving macro-economic situations”.
“For small and medium enterprises dominated cluster like Tirupur, the cost of funds is a vital element for capacity expansion and for meeting working capital requirements. With repurchase rate still on higher side, the borrowers are forced to pay high equated monthly instalments while repaying the bank loans,” M. Veluswamy, a prominent apparel exporter and chairman of Confederation of Indian Industry (Tirupur district council), pointed out to The Hindu.
Compounding the woes of the industrialists, the banks did not reduce the interest rates on loans when the RBI marginally reduced the repurchase rate (also called shortly as repo rate) by 0.25 per cent in March 4 this year.
“Unless the repo rates are slashed significantly, the banks are not going to reduce the interest rates by a substantial margin,” opined technical experts and industrialists.
A glance through the chronology of repo rates points out that the rate was just 4.75 per cent in 2009 and had been raised subsequently with only occasional reductions in the last few years citing mostly inflation as the reason for increasing the rates.
Inflation
“Using repo rate as a tool to suck out excess liquidity is not a correct method as inflation in India has been caused by various other factors.
By keeping the bank rates higher, the industrial growth will get affected especially when it comes to SMEs who are unable to afford high cost of funds,” observed G. R. Senthilvel, the secretary of Tirupur Exporters and Manufacturers Association.
