India Inc cheers rate cut; sees interest rates coming down

The Reserve Bank of India, or RBI has cut the repo rate by 100 bps to 8 per cent with immediate effect. This is the first repo cut since 2003. Industry experts collectively believe that following the central bank's move, interest rates will ease. Higher interest rates may have affected on the performance of many companies. A cut in the repo rate has certainly cheered India Inc and has given a boost for the investors to invest more. 

Ravi Kumar, CMD, BHEL, feels it is a very good decision by the government. He expects some reduction in lending rates in future. ''That will not happen immediately but down the line after six months it is going to happen. So it will send a good signal to our customers. A lot of projects can happen now and the advances will be better. Even though we are not a borrower, it will definitely help in getting more advances for our projects and more projects will become reality.''

Venugopal Dhoot, CMD, Videocon Industries, feels the move is in line with the central banks across the world who are boosting liquidity in the system and which is necessary. He expects consumer finance to be available at 1per cent lower rates after repo cut. 

Dhoot further stated that in future if the situation is under control, the next quarter results will be good and cash flow will be available to the corporates and equity will not be a problem. Also RBI will take all the steps so that capital formation takes place in the country, he added. 

Meanwhile realty majors Unitech and DLF are hopeful that the repo rate cut will ease home loan rates.

Sarang Wadhawan, MD, HDIL, too has welcomed the move from the RBI. ''I think we needed to see this aggression sometime back. What we are seeing is this effort is on a global level with other bankers with the way they have cut it. This will infuse some liquidity back into the system; we will see people investing a little more."

Wadhawan further stated that demand will take its own time to factor in. ''The CRR increases in the month of January-March have actually wiped out the liquidity in the month of October. Once this repo cut takes place it will take its own time to come into the system and infuse some more liquidity and get the sales up.'' 

YM Deosthalee, CFO, L&T, said that as far as their business is concerned, it was not impacted because of the higher interest rates. However, from a broader perspective Deosthalee feels it was essential. ''Credit available at affordable rates is important. So, this is a good signal that this repo rate has been cut. The only thing we will have to wait and watch is how deposit rates come down, and at what rates banks start lending now, as far as fresh lending is concerned.''

Deosthalee feels ''It will take a few months before we see some coming back of action. But this is an extremely good signal, apart from the CRR cut, because both are important, liquidity and affordable rates. So, it may take a little while before demand comes back. I am sure this is not the end of it.''

Pawan Goenka, COO, Mahindra and Mahindra, pointed that the liquidity of funds and the drop in CRR rate that happened over the last couple of weeks has helped. Secondly he said is the the repo rate drop hopefully will lead to lower interest rates.

However, Goenka feels the problem still is that banks are still not very sort of comfortable, they are hesitant to lend money for retail financing and therefore one needs to see whether with this move the banks would be more open with their funds and go back to the kind of retail financing that was happening. ''Also right now with the festive season there, it's very important that we have a very good month which will depend to a large extent on how much money is available and at what rate.'' 

It might be possible that the banks are sitting on money and are not willing to lend for fear of bad loans. The other thing could be the case of too much competition or too much demand chasing with too little money. To this, Goenka said ''There are more funds that are being made available at the retail level but the fear of the money not coming back or the fear of bad loans is what is stopping the banks from being as aggressive as they have been in the past for lending for retail finance.'' 

Commenting on the performance of the sales post the rate cut Goenka said the most important retail days are starting from three-four days before Diwali, Dhanteras is perhaps the biggest single car selling day, of 365 days. ''So as long as the effect of CRR and repo rate comes to the market lets say even this week that should be sufficient time for us to have a good month. '' 

RC Bhargava, Chairman, Maruti Suzuki, said that one of the big problems the company experienced in the last few months has been both the inadequacy of financing and the higher interest rates. So he feels the steps which have been taken both in terms of increasing liquidity by reducing this CRR (cash reserve ratio) and now by reducing repo rate helped to solve both those problems and definitely be beneficial for the entire automobile industry. 

On the company's sales front he said the number of cars that are getting financed has been dropping off. ''The reasons are both the higher interest rates as well as the fact that banks have become much more stringent in approving car loans.'' He added that in the last couple of months, the growth rate has been around 2 per cent or 3 per cent.