New Delhi: Hike in interest rates by the Reserve Bank of India (RBI) may lead to more non-performing assets (NPAs) of banks, as high raw-material cost and low margins would put pressure on SMEs, leading to their inability to repay loans, industry body survey on Thursday said.
“...increased cost of inputs may affect their (SMEs) ability to service loans/interest commitments and may be a major factor for increased NPAs of banks,” Assocham said.
However, the study did not mention about the present NPAs in the small and medium enterprises (SMEs) sector.
The chamber surveyed 1,000 small and medium enterprises.
Despite concerns of the industry that any further increase in interest rates would impact growth, the RBI went on for another round of hike in its first quarterly review of Monetary Policy for 2011-12 on 26 July, raised its key rates by 50 basis points.
However, the market had expected only 25 basis points hike.
The RBI’s next review is scheduled on 16 September. Since March 2010, the RBI has raised the key rates 11 times to control price rise.
Assocham said, the RBI’s weapon of hiking key rates has an impact on overall survival of SMEs and might prove to be “serious and alarming”.
The sector faces major challenges, including uneasy availability of credit, poor infrastructure, lack of technology and skilled labour.
Therefore, the chamber has urged the government to address these issues through fiscal measures, including incentives for the sector.