Business Standard

India Inc disappointed with no rate cuts

CEOs say cut in interest rates an essential element to bring positive sentiment into market

Dev Chatterjee Mumbai
The RBI’s move to keep the interest rates unchanged left India Inc leaders disappointed but the CEOs say the RBI has taken the cautious stand mainly due to steep depreciation of rupee, which is likely to push up inflation.

The CEOs say a cut in the interest rates is an essential element to bring positive sentiment into the market. But the RBI’s decision on the rate cut is more biased towards controlling inflation than stimulating growth.

On Monday, the Reserve Bank today kept key policy rates unchanged in view of high food inflation, the declining value of rupee and global uncertainty. The corporate sector was seeking a cut in interest rates to manage their finance costs.
 

“The RBI monetary policy is a disappointment. It is another lost opportunity. The RBI has maintained that it wants to balance growth and inflation. With the headline inflation down the industry was expecting a new policy direction from RBI and reduction in interest rates. With RBI keeping rates unchanged the investment cycle will get postponed. As we are in capital goods sector we are dependent on capacity building by other industries and order inflows too may get impacted,” said  M S Unnikrishnan, managing director of Thermax Ltd.

Other CEOs agree. “Today, companies are increasingly looking for more working capital caused by tight liquidity cycle and extended credit periods. Thus, there has to be an initiative towards bringing in more liquidity into the market,” said Seshagiri Rao, Jt. MD, JSW Steel &  Group CFO.

The Indian corporate sector’s finance costs have shot substantially in the last three years with many of the top corporates struggling to managing debt. With no respite from the RBI today, the CFOs say the interest costs will remain high in the near term.

"Rates are high we were expecting a rate cut either in CRR or repo rate so that liquidity can increase but there is no such changes. This will have an impact on my interest cost," said P K Goyal, Director Finance at Indian Oil Corporation.

Others echo the same view.  "I was expecting an interest rate cut which has been long due. There has however, been no change. This will continue to impact our interest cost," said Suresh Jain, CFO, Essar Oil.

CEOs said the inflation and current account deficit (CAD) appear to be determining the policy stance going forward.  As on date, in every sector there is no pricing power with the industry due to lack of demand. Demand pick up can happen if liquidity is infused and interest rates are made affordable to borrowers.

Real estate players like Unitech said the RBI policy was on expected lines. R Nagaraju, vice president, corporate planning, Unitech said: No one expected that RBI to cut rates given rupee depreciation.”

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First Published: Jun 17 2013 | 8:24 PM IST

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