SMEs unhappy over RBI's interest rate hike

BANGALORE, INDIA: The Small and medium enterprises (SMEs) in the country have expressed their reservations over the Reserve Bank of India's (RBI) decision to hike interest rates by 50 basis points to tame inflation.

The decision sets the stage for commercial banks to raise the interest rates charged on personal and corporate loans.

Industry experts say the slow-down in sales due to high interest rates on home loan will only worsen, as small builders would now have to pass on even the extra cost of borrowing for new projects on customers.

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“As real estate developer, we are not left with any choice but to pass on the same to our buyers, resulting in increase in property prices,” said Pradeep Jain, chairman of Parsvnath Developers Limited who also heads the Confederation of Real Estate Developers' Association of India (CREDAI).

Jain said that rate tightening in the past 17 months has already resulted in moderation of growth coupled with fall in consumption of cement, steel and automobiles during the first quarter of 2011-12 fiscal.

“The effects of slower growth have also been seen in sales of everything, may be real estate, may be car sales etc,” Jain said.

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The rate hikes were effected by Reserve Bank of India (RBI) Governor D Subbarao during the first quarterly review of the apex bank's monetary policy for this fiscal conducted at his headquarters in Mint Road in the national capital.

The repurchase rate, the interest the central bank levies on short-term borrowing by commercial banks, has been hiked to 8 per cent from 7.5 per cent and reverse repurchase rate, or interest paid on short-term lending, raised to 7 per cent from 6.5 per cent.