Interest rate cut: Small relief for indebted firms

Interest rate cuts have not reduced cost of funds for corporates in the past

Some of India’s most indebted firms will get only a partial benefit from the recent cut in lending rates by banks, thanks to the continuing deterioration in their financial metrics. 

While banks’ average lending rates have declined by 400 basis points (bps), according to data from Reserve Bank of India over the past 10 years, Corporate India’s effective interest rate was up 60 bps during the period. 

One basis point is one-hundredth of a percentage point.

In the financial year 2015-16, BSE 500 companies (excluding financials) paid an effective interest rate of 6.9% on their outstanding debt up from 6.3%