There is a strong case for easing policy interest rates and liquidity as growth remains weak and CPI inflation is heading towards moderation. Thus, the RBI could relax the 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 RBI in January raised its policy repo rate by 0.25 percentage point to 8% in a bid to curb inflation. The central banks 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 medium-term notes in order to garner medium- or long-term funds from good quality institutional investors.
This borrowing should be over and above 100% 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% 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% of tier-I capital and suitable tenor restrictions (minimum three years), Kapoor said.