Amid the rising clamour from industry for rate cuts and signs of slow economic growth in September quarter that may compel Finance Ministry Arun Jaitley too, to argue Reserve Bank of India (RBI) Governor Raghuram Rajan to lower interest rates when the two meet ahead of an RBI interest rate decision, Raghuram Rajan has said that bad behaviour by some unscrupulous promoters was harming all industry and greater scruples would possibly do more to bring down borrowing costs for entrepreneurs than monetary policy actions.
Rajan stated that 'Some promoters find ways to take out the equity as soon as the project gets going, so there really is no cushion when bad times hit,' and added that lenders should insist on more real equity up front, and monitor the project closely to ensure it stays in. Promoters should not try and finance mega projects with tiny slivers of equity.
The RBI governor also detailed some remedial measures and said that introducing monetary incentives for members of Debt Recovery Tribunals that bring down the duration of hearing of cases, a limit on number of stays that courts can grant against recovery of loans, making appeals against DRT orders costly as well as introducing a whole new bankruptcy regime could help in changing the situation.
Although, the central bank is unlikely to cut rates, but industry facing poor domestic and external demand is expecting a dovish stance by the RBI in its upcoming monetary policy review. Economic growth for the second quarter is widely expected to be around 5 percent, mainly due to a decline in farm and industrial output growth and has been confirmed by the rating agency Icra.
