"There is a strong case for easing policy interest rates and liquidity as growth remains weak and CPI inflation is heading towards moderation. Thus, RBI could relax repo rate (by at least 50 bps) in the next 6-12 months," Kapoor, who is also President of Assocham said.
He also made a case for a proactive liquidity management through a term repo calendar, along with expansion of the term repo window from the current Rs 89,000 crore to ease money market volatility and ensure credit flow to productive sectors.
The RBI is scheduled to announce its annual monetary policy for 2014-15 on April 1.
In its third quarter review of monetary policy, the Reserve Bank of India (RBI) in January raised the key repo rate by 0.25 per cent to 8 per cent in a bid to curb inflation. The central bank's move was expected to translate into higher equated monthly instalment (EMIs) and push up borrowing costs for corporates.
Kapoor said well-rated Indian banks with strong balance sheets may be allowed the flexibility of borrowing through bonds and MTNs (Medium-Term Notes), in order to garner medium/long term funds from good quality institutional investors.
This borrowing should be over-and-above 100 per cent of Tier I capital and considered only for banks with acceptable international risk ratings with minimum tenor of three years, he said.
Banks were allowed to borrow up to 100 per cent of Tier I capital and swap it with RBI at a concessional rate a facility which expired on November 30, 2013.
"This multilateral borrowing window could be made perpetual, provided the borrowing is subject to the overall limit of 100 per cent of Tier I Capital and suitable tenor restrictions (minimum 3 years)," he said.