Govt., India Inc. urge banks to provide cheaper loans

"If you are talking about a virtually zero inflation regime and you look at the interest rate, the effective cost today for a large corporate is between 11 percent and 12 percent, and is almost 15 percent or even more for the small and medium enterprises. Whereas everywhere else in the world, the real interest rates are at 3-5 percent," Singhania said.

According to Singhania, the beneficial effects of low inflation rate are yet to be enjoyed by the common man.

"What is particularly worrisome is that given the present inflation rate and the interest rates being charged by banks, the real rate of interest in the economy is at double digit levels," Singhania said.

"The Reserve Bank of India (RBI) (must) further ease the monetary policy to aid the industrial sector. Further, in view of the evolving situation the banks must shed their conservative stance with regard to lending to corporates and consumers. The banks must lower the lending rates to single digit levels if economic activity is to be stimulated. In fact the RBI and the government should embolden and incentivize the banks to direct resources for productive purposes," he said.

"Unless we are able to bring it (cost of borrowing) down, we can't expect to see the growth that we want to. It is for the banks to see how are they going to do that," Singhania said, adding that once state-run banks lower lending rates in coming months by 1-1.5 percent and bring it down to the going rates existing two years ago, it would automatically bring pressure on private banks to reduce their rates.

To inject liquidity into the market, the RBI has lowered the repurchase rate (repo) by 4 percentage points (or 400 bps) since early October to 5 percent and the cash reserve ratio (CRR), or the proportion of deposits banks must set aside as cash, by an equal amount to 5 percent. The reverse repurchase rate (reverse repo) has also been lowered by 2.5 percentage points over the same period to 3.50 percent.