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Updated on: Saturday, June 01, 2019, 02:32 PM IST

RBI rate hike to push cos over default cliff: India Ratings

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Mumbai : Interest rate hike by the Reserve Bank in the short-term will push more corporates over the “default cliff”, which can force up to 15 per cent of top 500 companies in severe distress and loan defaults, India Ratings warned.

“Any further interest rate hike to push corporates over default cliff…any interest rate hike in the next three to six months may wither even the signs of green shoots,” it said, arguing for rates to be kept on hold till September.                 RBI is scheduled to announce monetary policy on Tuesday. It is widely believed that the central bank is likely to leave the rates unchanged as the core inflation remains sticky, even though overall inflation rates have been trending down. The report said a rate hike of either 0.25 to 0.50% by RBI in the next two quarters will push the number of stressed companies in the BSE-500 companies by 14-15%.

The credit rating agency said its analysis of BSE-500 companies suggests that the stress on the balance sheet debt will grow to 16 per cent in case of rate hike from the 15% in December last.

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Analysts expect RBI Governor Raghuram Rajan to hold rates at the review, given that there has been some cooling in the consumer price based, or retail inflation, and the February’s 8.1 per cent is close to the RBI target of having it at 8 per cent by January 2015.               However, some challenges persist in the form of recent instances of unseasonal rains as well as a likelihood of a rainfall deficit in some areas — both of which will push up prices.

The El Nino factor may also be looked into by RBI. At the last review on January 28, Rajan unexpectedly went in for a 0.25% hike in the repo rate.

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Published on: Friday, March 28, 2014, 12:04 AM IST
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