Credit and finance for MSMEs: The repo rate hike cycle by the Reserve Bank of India’s (RBI) monetary policy committee, which recently raised the rate by 35 basis points (bps) to 6.25 per cent and took the cumulative hike to 225 bps since May this year, will increase the interest cost for MSME and retail consumers by around Rs 68,625 crore, according to SBI Research’s latest Ecowrap report. With around 47 per cent of the loans benchmarked to external benchmarks (EBR), the increase in repo rate of 225 bps will eventually increase interest cost further, it said.
“1 bps increase in repo rate will have a combined impact of around Rs 305 crore on consumers – Rs 65 crore on retail MCLR (marginal cost of the fund-based lending rate) loans and Rs 240 crore on MSME MCLR loans which may impact demand, going forward.” MCLR is the minimum interest rate a bank can lend at while EBR is the lending rate set by the banks linked to external benchmarks, for instance, repo rate and a three-month or six-month treasury bill yield.
The monetary policy committee had hiked the repo rate by 40 bps in May followed by 50 bps in each of the following three meetings.
“While those covered under the Emergency Credit Line Guarantee Scheme (ECLGS) would still get credit at the earlier rate but others are more likely to be affected by the repo rate hike because your cost would have gone up,” Bank of Baroda chief economist Madan Sabnavis had told FE Aspire.
In his address on December 7 announcing the outcome of the monetary policy committee meeting, RBI Governor Shaktikanta Das said the MPC was of the view that further calibrated monetary policy action is warranted to keep inflation expectations anchored, break core inflation persistence and contain second round effects. “These actions will strengthen the medium-term growth prospects of the Indian economy.”