Mumbai/New Delhi, Oct 11 : Private sector bank ICICI has welcomed the Reserve Bank of India's (RBI) measures to ease the credit squeeze. The RBI cut the Cash Reserve Ratio (CRR) by 1.5 percentage points to 7.5 per cent, saying the move would free up around 600 billion Indian rupees in funds.
Finance Minister P. Chidambaram said the authorities would take further steps to provide more funds to the banking sector.
ICICI Joint Managing Director Chandra Kochchar termed the RBI's move as a welcome step.
"Rather than advantage, it's a necessity. The liquidity situation has become very tight in the past few days. It's a welcome step the RBI has taken by releasing liquidity to the extent of about 60, 000 crores in the system by CRR (Cash Reserve Ratio) cut," Kochchar said.
Tight liquidity also prompted the government to call off an auction for two billion dollars worth of government bonds.
But a major industrial lobby said the move could adversely affect growth.
"We are at a very critical juncture, where there is a serious credit crunch which the government itself has come up with. No banks are going to fail unlike in the West, but industry, services and agriculture will be denied of credit that will in turn lower growth rate and most importantly lower confidence," said Amit Mitra, general secretary, Federation of Indian Chambers of Commerce and Industry.
A global round of interest rate cuts this week failed to cap overnight rates, which more than doubled from Wednesday's closing levels of around ten per cent.
Indian authorities slashed banks' reserve requirement on Friday and pledged more funds to ease a credit squeeze that drove short-term borrowing rates to9-month highs.
The rupee hit an all-time low of 49.30 per dollar in early trade, bringing this year's losses to 20 per cent before it regained some ground with the help of state-run banks selling dollars and the cash reserve cut. The reserve easing also helped India's battered stocks recoup some of the early losses.