Money & Banking

Cost of funds set to increase for corporates

G. Naga Sridhar Hyderabad | Updated on March 17, 2011

“The rate hike is likely to impact borrowing costs and investment spending in the future while also possibly reducing demand side inflation.”



Funds for corporates will now become dearer by about 25 basis points, thanks to repo and reverse repo rate hike by the RBI on Thursday.

“Money becomes a little more expensive as bank balance sheets should see some re-pricing now,'' a senior official of Andhra Bank told Business Line.

At present, the upper interest limit for corporate loans is in the range of 12 per cent though there are large variations individually on the lower range.

Bankers do agree this might impact the industry growth and cause slowdown in investments given the signals by the apex bank that it might hike rates further in the days to come.

According to Ms Renu Challu, Managing Director, SBH, the rate hike would impact that growth ‘to some extent' but ‘it is a trade-off' that RBI had to do in the light of inflationary pressures.

“But I don't think a 25 basis point rise in rates should impact corporates in a big way,'' Ms Challu said.

The rate hike is likely to impact borrowing costs and investment spending in the future while also possibly reducing demand side inflation, according to Mr Umang Vohra – Chief Financial Officer, Dr Reddy's Laboratories Ltd.

A joint effort by the RBI and Government is needed to tackle issues around supply, and the next two quarters would be key in deciding the course of the economy, he said.

“The RBI action in increasing the repo and reverse repo rates was expected and is in line with the policy of managing the economy (including inflation). This would certainly result in an increase in the cost of funds,'' Dr Bhaskara Narayana, Director & CFO, Natco Pharma Ltd, said.

Corporate demand

According to Mr Dilli Raj, CFO, SKS Microfinance Ltd, credit for corporates would become costlier if banks choose to raise lending rates immediately.

“Generally, the corporate demand for credit will be there till March 31 every year. In the first quarter it slackens. So, it depends on the timing of hike in lending rates,'' he said.

The repo/reverse repo hike has already been discounted by some banks, he added.

Published on March 17, 2011

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor

You May Also Like