India Inc frets over interest rate increase

Sep 21 2013, 16:01 IST
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India Inc though acknowledge the attempt to bring down the stress of funding being faced by corporates due to liquidity tightening measures. India Inc though acknowledge the attempt to bring down the stress of funding being faced by corporates due to liquidity tightening measures.
SummaryIndia Inc though acknowledge the attempt to bring down the stress of funding being faced by corporates due to liquidity tightening measures.

India Inc is disappointed with RBI’s decision to hike rate even as they acknowledge the attempt to bring down the stress of funding being faced by corporates due to liquidity tightening measures announced earlier.

“It was bit of a surprise as it was not on expected lines. But as one moves beyond that surprise element, the governor has done a realistic assessment of the situation on the ground giving a signal that lot of things in the economy still require fixing," said Shankar Raman, wholetime director and group CFO, Larsen and Toubro.

RBI governor Raghuram Rajan surprised markets in his maiden policy review by raising repo rate by 25 basis points (bps) to 7.50%, even as he lowered the marginal standing facility (MSF) rates — which currently is the effective policy rate — by 75 bps to 9.5%.

“It is rather disappointing to see Raghuram Rajan continue to follow the policy of the previous governor of increasing repo rates to tame inflation. It did not work earlier and caused slowdown of economic growth. I expected the new governor to think differently and take some measures to reduce interest cost and provide liquidity to restart the growth engine,” said Praveen Sood, Group CFO, Hindustan Construction Company.

The companies do not expect RBI announcement to have much impact in easing liquidity in the market or bringing down rates in the commercial paper (CP) market. To add to this, they expect banks to raise their lending rates in response to the tight liquidity conditions.

“I do not see any meaningful shift to the CP market as it will remain pricey as the liquidity continues to remain tight,” said Shankar Raman, the wholetime director and group CFO, Larsen and Toubro.

Banks have seen a pick up in credit growth over the last month or so, as corporates have moved back to the loan market for their short-term requirement rather than borrowing from the CP market.

“The hit to the real estate industry stems from the high borrowing cost for projects with long gestation periods. If not through the monetary policy, the industry needs to be provided immediate relief through other fiscal measures,” said Brotin Banerjee, MD and CEO, Tata Housing.

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