Implementation of MCLR effective from 1st April, 2016 would ensure cost effective credit: FIEO

Ludhiana, April 5, 2016: Shri S C Ralhan, President, FIEO stated that there has been a reduction in repo rates by 25 basis points to 6.5 per cent while the CRR rate remains unchanged with minor tinkering with daily maintenance of the cash reserve ratio and alignments in policy corridor to address liquidity requirements.

FIEO chief while expressing optimism and a hope for a positive turn of events stated that while exports have declined in February in US dollar terms for the fifteenth successive month, the rate of contraction narrowed to a single digit for the first time in this period and volume growth turned positive with decline in non-POL exports with gems and jewellery, drugs and pharmaceuticals, electronics and chemicals driving the upturn and even the prolonged contraction in imports also slowed significantly, and non-POL non-gold import growth turned positive for the first time after seven months. This reflected a sizable upsurge in imports of machinery, supported by a pick-up in imports of pearls and precious stones and electronic goods.

President, FIEO stated that this cut in policy rates and the implementation of Marginal Cost of Lending Rates (MCLR) effective from 1st April 2016 would enable loan rates of different banks for different tenures to come down between 2 and 20 basis points in which case borrowers can link short term loans with three-month MCLR which could improve credit –offtake which was lowest for MSME segment ending 30thMarch 2016.

FIEO chief stated that a declining trend in export credit as a percentage of NBC was at a low of 3.4% in 2015 and possibly lower ending March 2016 needs to be addressed with export contraction narrowing down besides clarifications from Government of India on cash credits taken for export production/job work post re-introduction of subvention/equalization.