The Hindu Business Line : Corporates hopeful repo rate cut will ease credit squeeze

Mumbai/New Delhi, Oct. 20 Corporates are hopeful that the Reserve Bank of India’s latest cut in its short-term lending rate by 100 basis points, to 8 per cent, will bring some relief from the prevailing credit squeeze.

“The repo rate cut will push up the growth in every sector by increasing liquidity in the market. The effect of this step will bring in a huge boost for the markets and will be visible in wholesale price index in the weeks to come. This move will help to boost liquidity in the Indian markets. It will also help lower interest rates and spur consumption to keep the economy ticking,” said Mr Rohtas Goel, CMD, Omaxe Ltd.

The apex bank’s move would create a positive sentiment in the market, said Unitech Ltd’s Managing Director, Mr Sanjay Chandra, adding that he hoped that interest rates would also come down in the near future, which in turn would benefit the realty sector and end-consumer.

Though the move was welcome, it will take some time for the funds to flow into the system, observed Cipla’s Chief Financial Officer, Mr S. Radhakrishnan. Corporates are still facing credit problems with the cost of funds being high and banks not having enough cash, he said.

“For any significant impact more reduction has to happen,” said Ceat’s Managing Director, Mr Paras K. Chowdhary. “Interest rate has gone up by a few percentage points in past many months and it caused a downtrend in demand,” he said. However, he added that two CRR cuts and repo rate cuts signal the start of a low interest regime. About corporate borrowings, he said “banks were very tight. The repo cut would move would ease the situation”.

Parsvnath Chairman, Mr Pradeep Jain, observed that they had expected a 200-basis point cut in the repo rate. “We were expecting a 200 basis point cut in the repo rate, whereas what has come is only 100 basis points. We hope that in future there would be another cut of 100 basis points.”

Nevertheless, the repo cut could benefit both corporates as well as home loan customers, he said. “While on one hand it will bring down the interest rate of lending by the financial institutions, it would also provide support to the home buyer, by bringing down the home loan rates,” he added.

Mr Punit Beriwala, Managing Director of Vipul Ltd, hoped for a generous follow-on from banks lending more liquid cash and improving the cash crunch in the economy. “I am confident that this will have a trickle down effect on the real estate sector which is reeling under paucity of funds.”

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