Corporates may step up investments

The more-than-expected reduction in repo rate is likely to create an investment-friendly environment for corporates, say experts.

“The rate reduction is a welcome step. A half a per cent reduction in interest rate will mean a lot for industry at a time when the margins are very thin,” Mr Srikanth Reddy, Executive Director, Sagar Cements Ltd, told Business Line here.

Banks are expected to pass the benefit to the customers in the form of reduced interest rates.

“A major part of the reduction in repo rates will definitely be passed on to borrowers,” Mr M Bhagavantha Rao, Managing Director, State Bank of Hyderabad, said.

As the apex bank has also hinted at progressive cut in rates, companies are also expected to take a re-look at the projects that have been withheld and step up investment. “It is a fact that the interest rate should see reduction,” Dr P. Bhaskara Narayana, Chief Financial Officer, Natco Pharma, said.

The reduction in cost of funds, if the benefit is passed on to customers by banks, will create positive investment climate, he said.

“But for the growth to be faster and complete, there are also other factors such as political environment and other policies,” he added.

“But now, we are expecting a higher appetite for loan in corporate as well as housing segment,” Mr Bhagavantha Rao said.

According to Mr B. A. Prabhakar, Chairman and Managing Director, Andhra Bank, credit-–linked investment propels may pick up over next three to six month because of the lag-effect of the interest rates.

“Definitely, rate reduction will improve investment sentiment,” he added.

> nagsridhu@thehindu.co.in