Tight liquidity will hit over-leveraged and cash-hungry companies, spare conservative ones

State Bank of India Chairman Pratip Chaudhuri might be confident that lending rates would not increase despite the central bank’s liquidity-tightening measures, but corporate India is hardly convinced.

India Inc says Wednesday’s measures, which came barely a week after similar tightening steps on July 15, have sent a clear signal that RBI is willing to live with higher rates, as it sees the rupee’s stability as priority. As a result, the last hope of an early turnaround in the capex cycle and economic growth rate has been dashed.

“The latest move is contrary to the industry expectations and will adversely affect capacity creation and hurt economic growth. It seems growth can wait as far as the the central bank is concerned,” says Thermax India MD M S Unnikrishnan. The move, he says, will add further pressure on his customers and worsen the outlook for capital goods companies, which will now be forced to either cancel or delay growth plans in response to rising and increasingly scarce credit.

The view is similar at Essar Group, which has interest in steel, oil & gas, ports, shipping, power and BPOs. “Borrowing in rupee will become prohibitively expensive and unviable for firms. More companies will opt for dollar borrowing but that might also become difficult due to the country risk India is carrying today,” says Prabal Banerjee, president (international finance) Essar Services India.

“RBI has reasons to do so, but since this has been done with the aim to suck up liquidity from the system, it will have a cascading effect on interest rates. That’s a negative for industry,” says Issac George, chief financial officer at infra firm GVK Power & Infrastructure.

For more visit: Business Standard

Similar Posts:

• RBI steps fail to check rupee as it hits fresh low at 61.80
• RBI offers forex liquidity to Indian banks abroad
• Enough is enough, says India Inc
• Rupee slumps to record low of 55.47/dlr; RBI still absent
• S&P revises India outlook to negative from stable – Markets correct