India Inc cheers RBI rate cut, hopes for investment boost
Firms to roll over high-cost loans, borrow afresh when rates fall
Industry has welcomed the RBI move to cut rates by 25 basis point.
Companies believe that the rate cut will encourage investments. They also believe that the two rate cuts in two months will lead to reduction in lending rates as well. A lot of companies would start to roll over their existing high cost loans and even borrow at new rates for their greenfield projects.
RBI had earlier indicated that the rate cuts would be guided by the government’s efforts to achieve fiscal consolidation and inflation dynamics. The rate cut on Wednesday is an unambiguous signal to the markets that the RBI is satisfied with the government’s commitment to medium-term fiscal consolidation plan.
Chandrajit Banerjee, director general of CII, said his organisation is in agreement with the prognosis that the quality of fiscal deficit is just as important as the quantum. Clearly the government’s intent is asset creation and, therefore, a delay in one year in the fiscal consolidation road map should be viewed through the glasses of overall macroeconomic objectives.
“With the overall sound macroeconomic management that has been in evidence over the last many months and clearly spelt out targets for fiscal deficit roadmap, CII believes that the rating agencies would also take a positive view of investment climate in India,” said Banerjee.
Rajeeva Sinha, COO, Adani Ports and SEZ, said the reduction in rates would definitely have a strong impact on corporate sector borrowings and overall investments in the coming quarters, since there was strong pent-up demand.
"In immediate terms, companies will look at rolling over their existing portfolio of loans. But the real effect could be felt in the consumer and home loans where customers have been waiting for some time,” he said.
Brotin Banerjee, MD and CEO, Tata Housing Development Company, said the rate cuts would contribute positively to the growth of the real estate sector.
“It will permit banks to cut down interest rates on home loans enabling new consumers to take advantage of the low interest rates in the real estate market. We are, however, hopeful that, given the positive sentiment towards the budget and the economy, a further cut in rates would be announced later this year.”
Santosh Mohapatra, director, Dhamra Port, ealier part of L&T and Tata Steel and now owned by Adani Group, believes, the move is definitely going to increase the renegotiation of borrowing costs as mentioned under the reset clause and would have a positive impact on those companies who are reeling under high borrowing costs for couple of years.
“The trend of banks cutting rates has already started and now the cumulative impact of two rate cuts will augur well for others to follow,” said Mohopatra in his personal capacity.
Hemant Kanoria, managing director of Srei Infrastructure Finance, said the cut of 50 basis points in two months is good for lending capacities of banks and improves borrowing capacities of companies. However, it may take some time before it gets reflected. "If cut in rates were in the range of 1 per cent to 1.5 per cent, then there could be immediate cut in lending rates; however, the cumulative 50 basis points have banks started thinking positively in terms of cutting lending rates now,” said Kanoria.
Earlier during the day, Raghuram Rajan said the cut in rates outside the policy was based on two factors: first, the weak state of certain sectors of the economy and the global trend towards easing suggests the policy action should be anticipatory, once sufficient data support the policy stance; second, with the release of the agreement on the monetary policy framework, it is appropriate for RBI to offer guidance on how it will implement the mandate.
“Going forward, RBI will seek to bring the inflation rate to the mid-point of the band of 4 per cent (+/- 2%) provided for in the agreement, to 4 per cent by the end of a two year period starting fiscal year 2016-17,” said Rajan.
Companies believe that the rate cut will encourage investments. They also believe that the two rate cuts in two months will lead to reduction in lending rates as well. A lot of companies would start to roll over their existing high cost loans and even borrow at new rates for their greenfield projects.
RBI had earlier indicated that the rate cuts would be guided by the government’s efforts to achieve fiscal consolidation and inflation dynamics. The rate cut on Wednesday is an unambiguous signal to the markets that the RBI is satisfied with the government’s commitment to medium-term fiscal consolidation plan.
Chandrajit Banerjee, director general of CII, said his organisation is in agreement with the prognosis that the quality of fiscal deficit is just as important as the quantum. Clearly the government’s intent is asset creation and, therefore, a delay in one year in the fiscal consolidation road map should be viewed through the glasses of overall macroeconomic objectives.
“With the overall sound macroeconomic management that has been in evidence over the last many months and clearly spelt out targets for fiscal deficit roadmap, CII believes that the rating agencies would also take a positive view of investment climate in India,” said Banerjee.
Rajeeva Sinha, COO, Adani Ports and SEZ, said the reduction in rates would definitely have a strong impact on corporate sector borrowings and overall investments in the coming quarters, since there was strong pent-up demand.
"In immediate terms, companies will look at rolling over their existing portfolio of loans. But the real effect could be felt in the consumer and home loans where customers have been waiting for some time,” he said.
Brotin Banerjee, MD and CEO, Tata Housing Development Company, said the rate cuts would contribute positively to the growth of the real estate sector.
“It will permit banks to cut down interest rates on home loans enabling new consumers to take advantage of the low interest rates in the real estate market. We are, however, hopeful that, given the positive sentiment towards the budget and the economy, a further cut in rates would be announced later this year.”
Santosh Mohapatra, director, Dhamra Port, ealier part of L&T and Tata Steel and now owned by Adani Group, believes, the move is definitely going to increase the renegotiation of borrowing costs as mentioned under the reset clause and would have a positive impact on those companies who are reeling under high borrowing costs for couple of years.
“The trend of banks cutting rates has already started and now the cumulative impact of two rate cuts will augur well for others to follow,” said Mohopatra in his personal capacity.
Hemant Kanoria, managing director of Srei Infrastructure Finance, said the cut of 50 basis points in two months is good for lending capacities of banks and improves borrowing capacities of companies. However, it may take some time before it gets reflected. "If cut in rates were in the range of 1 per cent to 1.5 per cent, then there could be immediate cut in lending rates; however, the cumulative 50 basis points have banks started thinking positively in terms of cutting lending rates now,” said Kanoria.
Earlier during the day, Raghuram Rajan said the cut in rates outside the policy was based on two factors: first, the weak state of certain sectors of the economy and the global trend towards easing suggests the policy action should be anticipatory, once sufficient data support the policy stance; second, with the release of the agreement on the monetary policy framework, it is appropriate for RBI to offer guidance on how it will implement the mandate.
“Going forward, RBI will seek to bring the inflation rate to the mid-point of the band of 4 per cent (+/- 2%) provided for in the agreement, to 4 per cent by the end of a two year period starting fiscal year 2016-17,” said Rajan.
- by Vikas Srivastav
Source :- Financial Chronicle
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