Small business, exporters hurt by credit policy

By IANS

New Delhi : The Reserve Bank of India’s (RBI) decision to hike cash reserve ratio (CRR) to 7.5 percent and keep the bank rate unchanged has disappointed large sections of Indian industry, particularly exporters and small and medium businesses.


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CRR is the amount of money commercial banks necessarily park with RBI. Increasing the CRR rate means banks are left with less money to lend.

Anil Bhardwaj, secretary general of Federation of Indian Micro, Small and Medium Enterprises, told IANS: “Small and medium businesses will bear the consequences of RBI’s move to raise CRR.”

He said that because of the reduction in liquidity, banks might become averse to lending to this segment, which is supposed to be a relatively risky group.

Vijay Kumar Agarwal, chairman of Apparel Export Promotion Council, told IANS: “We are disappointed because we were expecting a reduction in interest rates.”

Agarwal maintained that apparel exports have sharply declined due to high interest rates.

Noted trade analyst Arun Goyal said that RBI wanted to restrain the banking industry. “Interest rates will go up due to reduction in liquidity,” he pointed out.

He however said that this measure would help slow the appreciating rupee and contain inflation.

RBI governor Y. Venugopal Reddy left all key bank rates unchanged in the mid-term review of the monetary policy for financial year 2007-08 announced earlier Tuesday.

The bank rate at six percent, repo rate at 7.75 percent and reverse repo rate at six percent all remained the same.

The cash reserve ratio (CRR) was however hiked by 50 basis points to 7.5 percent with effect from Nov 10.

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