 "Low rate to help revive stalled projects, says India Inc")
Indian companies welcomed the Reserve Bank of India (RBI)’s move to cut interest rates, claiming it would boost demand for home and automobile loans, as well as encourage restarting of stalled projects.
Chief executives of a number of companies said they expect another cut 50 to 200 basis points cut by December. Lower rates will help revive stalled projects worth Rs 8.8 lakh-crore across the country.
“This step is appropriate, since the demand push would require more investment and will put the growth cycle in place. I expect another 50-basis point cut over the rest of the year, if not more, to push the demand cycle in circulation and create more demand for investment in capacity. Hopefully, by that time, the existing gap between demand and capacity would be filled in, by the spurt in demand. This will help the auto and housing industry, in particular, which employs millions of people. The rate cut could not have come at a better time,” said Prabal Banerjee, president, international finance, Essar Group.
Many stalled projects across the country are waiting for cash to re-start. The stock of stalled projects at the end of December 2014 stood at Rs 8.8 lakh-crore or seven per cent of the gross domestic product (GDP).
“These projects can be revised if the banks cut interest rates and give a moratorium on repayment. Both the government and the RBI have taken several steps to revive these projects which can add to the growth of GDP,” said an analyst.
“If the Budget was a supply and demand side balancing act, the RBI’s current move is complementary to fostering activity at the ground level, both in rural economy and kick-starting investment in projects. Of course, there will be a lag for the rate cut to positively impact the growth and demand scenario but the direction setting will anchor the positive sentiments firmly,” said V S Parthasarathy, chief financial officer of Mahindra & Mahindra.
The Economic Survey said clearing the top 100 projects by value will address 83 per cent of the problem of stalled projects. “This makes the problem look relatively manageable,” it says and suggests that lower rates will help revive the projects.
Soon after the January rate cut, Indian CEOs had predicted a 300-basis point rate cut — taking into account the low inflation rate and the need to borrow funds to start new projects. The real estate sector and automobile companies were vocal about the rate cut as it directly impacted their sales.
“Rate cut is very good for the sector. It is good that RBI and government are acting together. Hopefully, this is passed on to customer. I expect the demand for homes to go up,” said Rajeev Talwar, executive director of real estate major DLF.
“Coming on the back of a growth-oriented budget, the unexpected cut in headline interest rate by the RBI sends a huge positive signal that the central bank and the government are working in tandem to provide a robust scaffolding to growth, even while not losing sight of inflation, which has now been made explicit in the objectives of the RBI,” said Chandrajit Banerjee, Director General of industry lobby body, CII.
CEOs say the fall in interest rates will help them to bid aggressively in the coal and spectrum auctions now underway as most of them were planning to use bank funds besides own funds to bag coal blocks and spectrum.
“The rate cut has come at the right time. The spectrum auction starts today and it will help Indian companies to bid for these assets aggressively as their cost of funds have come down,” said a CEO of a mining firm, asking not to be quoted.
Chief executives of a number of companies said they expect another cut 50 to 200 basis points cut by December. Lower rates will help revive stalled projects worth Rs 8.8 lakh-crore across the country.
“This step is appropriate, since the demand push would require more investment and will put the growth cycle in place. I expect another 50-basis point cut over the rest of the year, if not more, to push the demand cycle in circulation and create more demand for investment in capacity. Hopefully, by that time, the existing gap between demand and capacity would be filled in, by the spurt in demand. This will help the auto and housing industry, in particular, which employs millions of people. The rate cut could not have come at a better time,” said Prabal Banerjee, president, international finance, Essar Group.
Many stalled projects across the country are waiting for cash to re-start. The stock of stalled projects at the end of December 2014 stood at Rs 8.8 lakh-crore or seven per cent of the gross domestic product (GDP).
“These projects can be revised if the banks cut interest rates and give a moratorium on repayment. Both the government and the RBI have taken several steps to revive these projects which can add to the growth of GDP,” said an analyst.
“If the Budget was a supply and demand side balancing act, the RBI’s current move is complementary to fostering activity at the ground level, both in rural economy and kick-starting investment in projects. Of course, there will be a lag for the rate cut to positively impact the growth and demand scenario but the direction setting will anchor the positive sentiments firmly,” said V S Parthasarathy, chief financial officer of Mahindra & Mahindra.
The Economic Survey said clearing the top 100 projects by value will address 83 per cent of the problem of stalled projects. “This makes the problem look relatively manageable,” it says and suggests that lower rates will help revive the projects.
Soon after the January rate cut, Indian CEOs had predicted a 300-basis point rate cut — taking into account the low inflation rate and the need to borrow funds to start new projects. The real estate sector and automobile companies were vocal about the rate cut as it directly impacted their sales.
“Rate cut is very good for the sector. It is good that RBI and government are acting together. Hopefully, this is passed on to customer. I expect the demand for homes to go up,” said Rajeev Talwar, executive director of real estate major DLF.
“Coming on the back of a growth-oriented budget, the unexpected cut in headline interest rate by the RBI sends a huge positive signal that the central bank and the government are working in tandem to provide a robust scaffolding to growth, even while not losing sight of inflation, which has now been made explicit in the objectives of the RBI,” said Chandrajit Banerjee, Director General of industry lobby body, CII.
CEOs say the fall in interest rates will help them to bid aggressively in the coal and spectrum auctions now underway as most of them were planning to use bank funds besides own funds to bag coal blocks and spectrum.
“The rate cut has come at the right time. The spectrum auction starts today and it will help Indian companies to bid for these assets aggressively as their cost of funds have come down,” said a CEO of a mining firm, asking not to be quoted.