MSMEs, personal loans to see this sharp rise in interest charges due to hike in repo rates by RBI: SBI report
Credit and financing for MSMEs: The hike in the repo rate by the Reserve Bank of India (RBI) by 140 basis points (bps) since May this year will eventually increase the cost of interest on MSMEs and personal loans by about Rs 1,957 by Rs 1 lakh loan in a year, said the latest SBI Ecowrap report by the bank’s group chief economic adviser, Soumya Kanti Ghosh. Besides, the demand for around Rs 50,000 crore could collapse during a rate hike scenario, Ghosh noted. In December 2021, 39.2% of bank loans were matched against external benchmarks, down from 28.6% in March 2021 and just 2.4% in September 2019, according to RBI.
The central bank had raised the repurchase rate by 0.4% in May, followed by 0.5% each in June and August, bringing the repurchase rate to 5.40% so far. RBI’s rate hike is generally aimed at discouraging commercial banks from borrowing in order to reduce the money supply in the economy and control inflation “in a deteriorating global economic and financial environment”, RBI had said. in its monetary policy statement in August.
Bank of Baroda Chief Economist Madan Sabnavis told FE Aspire (formerly Financial Express Online) that the cost of borrowing will increase by a proportional amount since most MSMEs are not compared to the repo rate. . “While people covered by the Emergency Line of Credit Guarantee (ECLGS) scheme would still get credit at the previous rate, but others are more likely to be affected by the rise in the repo rate because your cost would have gone up,” he said.
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The Ecowrap report added that if there was an increase in the repo rate of even 60 bps, there would be around Rs 22,184 crore in interest cost for MSMEs and retail customers (a 1 bps increase in the repo rate will have a combined impact of around Rs 370 crore on borrowers), the report noted.
The increase is likely to be imminent, as according to the latest Bloomberg survey released on Tuesday, economists expect the repo rate to rise another 35 basis points in the September monetary policy review and a jump by a quarter of a percentage point in December. This would bring the rate to 6%. “There will be another rate hike. It’s just guesswork now, but I think we’ll eventually get to 5.9% or 6%,” Sabnavis said.
Read also : Micro and small business credit growth improved to 19% in July from 1.4% a year ago: RBI data