Reeling under severe credit crunch, the Indian industry on Friday welcomed the decision of Reserve Bank of India [Get Quote] to cut CRR rate by another 100 basis points but said the government and the central bank need to take more steps such as slashing interest rates to restore market confidence.

While welcoming the RBI's move, apex chamber FICCI said there was a need to cut the repo rates by 150 basis points as well.

"Reduction in interest rates is absolutely essential in order to give a push to investments and thus to employment and demand, which has taken a severe beating in the recent past," FICCI said in a statement.

Such confidence boosting measures are also important to bring the stock markets to normal levels, it added.

Expressing similar views, Assocham president Sajjan Jindal said, "It was high time that the central bank should also consider reducing the benchmark lending rate to ensure adequate liquidity in the system."

He said if such a measure was not taken infrastructure projects would be severely affected.

Jindal also said though these measures were long overdue, "however, the action should not be taken as a 'panic signal', as non-performing assets of the banks are even lower than two per cent".

Stressing that the fundamentals of the economy were strong, he said investors in the stock market should not panic and the country has well regulated and tested regulatory mechanism in place.

Stating that the CRR cut was the need of the hour, CII director general Chandrajit Banerjee said: "This would go a long way in injecting additional liquidity into the system...this would (also) help boost industry sentiments".

Pro-active actions from the Indian regulators would ensure that India remains an island of stability even as the financial crisis unfolds in the rest of the world.

Banerjee also welcomed RBI's decision to cancel auction of Rs 10,000 crore (Rs 100 billion) bonds scheduled for today, saying it would have put further pressure on liquidity.

"In fact the RBI should think of unwinding some of the market stabilisation scheme bonds held by it. These were raised at a time when liquidity was excess and should be returned to the system now that there is a shortage of liquidity."

With another round of cut in the mandatory cash deposit requirement by 100 basis points, bankers feel that the easing of the liquidity would translate into softening of interest rates.

"CRR cut of 1.5 per cent which would release about Rs 60,000 crore in the banking system that could results in softening of interest rates," Bank of Maharashtra [Get Quote] chairman and managing director Allen C A Pereira told PTI.

Both lending and deposit rates are likely to see some downward trends as the cost of fund would decline, he said.

Another 100 basis points cut comes barely four days after RBI announced CRR reduction by half a percentage point and followed the rate cut decision by number of central banks across the world including US Fed, European Central Bank and Bank of England.

"Accordingly, on a review of the evolving liquidity situation in the context of global and domestic developments it has been decided to reduce CRR by 150 basis points to 7.50 per cent with effect from the fortnight beginning October 11, 2008 instead of 50 basis points reduction announced on October 6, 2008," RBI said in a statement in Mumbai.

According to Punjab National Bank [Get Quote] Executive Director J M Garg a rate cut cannot be ruled out. With the release of CRR amount, lending operations would ease to that extent.

For the time being major issue is liquidity, he said, adding, the benchmark rates could also be reduced in the days to come.

While speaking to a television channel, Indian Overseas Bank [Get Quote] chairman S A Bhatt expressed his concerns over clients putting off their plans due to high interest rates.

He, however, said, "Rate cut looks difficult as of now."

Meanwhile, Bank of India chairman and managing director T S Narayanasami told the channel, "The pressure on liquidity has intensified... liquidity will stay under pressure. We would like to stay liquid rather than intensify business operations. Liquidity infusion should be RBI's main concern."