The mood in India Inc remained non-celebratory on Wednesday, greeting the Reserve Bank of India’s (RBI’s) 35 basis point repo rate cut with muted optimism and choosing to wait for concrete results on the ground.
The past three consecutive repo rate cuts are yet to show the desired results as corporate credit growth has remained flat, signalling a potential slowdown in several sectors such as automotive, real estate and NBFCs—among the worst hit by dwindling consumer demand and a liquidity crunch.
“The rate cuts necessary for revival have been put in place and the future looks brighter for our stressed NBFCs," said Anand Mahindra, chairman, Mahindra Group. “I am confident that these measures will bear fruit, creating greater liquidity for NBFCs which will ultimately make its way into the hands of the consumer. If I had one wish, I would appeal to lenders to take a more supportive approach to the suppliers and dealers, who are the backbone of the auto ecosystem." To the industry as a whole, transmission of lower interest rates by banks continues to remain the biggest concern he added.
The fourth straight cut in the benchmark repo rate is a welcome step which will make borrowings cheaper, said Niranjan Hiranandani, senior vice president, Assocham and national president- Naredco.
“Cheaper credit would help boost demand in several sectors like real estate and auto which has been sagging since last several quarters. It would also help in bringing about some balance between growth and inflation. If banks are able to pass on this reduction in the prime lending rate to consumers, budget housing demand may also improve further. The rate cut aims to encourage consumer spending in a scenario which has been rather gloomy, given the economic slowdown and declining consumption," he added.
Jayant Mehrotra, chief financial officer, Lodha Group, concurred: “The bold step confirms RBI’s accommodative stand. This should help revive private investment and provide a much needed boost to the overall business sentiment, subject to speedy and sufficient transmission by banks. The effective lending rates by banks to corporates and individuals need to meaningfully align to the signal given by RBI through this policy action."
Sandeep Garg, MD & CEO of Welspun Enterprises Ltd, told Mint, “Today’s repo rate cut by the RBI is in line with the market expectations and ensures interest rates remain benign in the economy. This move is expected to be beneficial to the infrastructure industry. However transmission of lower interest rates by banks to infra players is going to be key and I hope this is done soon."
“As per our view, GDP growth will face significant headwinds due to global uncertainty and high debt of corporates said Murthy Nagarajan, head-fixed income, Tata Mutual Fund. “We feel deeper cuts in policy rates are required to tackle GDP slowdown. The number of defaults of companies has led to a trust deficit among lenders. We are witnessing mutual funds and banks shying away from lending to NBFCs, HFCs and other corporates. Given that many NBFCs, HFCs cater to the segment which is not serviced by the banks, the revival of these companies is crucial for the economy to grow at a robust pace. The RBI and the government need to support transmission of lower rates to these companies. We expect GDP growth to miss the RBI projection and (GDP to) grow around 6.5% . This will necessitate a cut of 40 to 50 basis points more in repo rates along with providing sufficient liquidity in the banking system.