dinesh kumar khara: ET Awards 2021: ‘RBI rate hike essential to fight inflation, but won’t hurt investment spending’

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The Reserve Bank of India’s (RBI) recent decision to raise repo rates by 40 basis points was much needed to tackle soaring inflation, and more such moves may follow, say said the top bankers and industrial bigwigs of a star-studded ‘The Economic Times Awards for Corporate Excellence, 2021’ held on Saturday. They added, however, that the rate hike should not hurt business investment plans as domestic and international demand remains strong.

During a discussion on Saturday, distinguished panelists Dinesh Kumar Khara, Chairman of State Bank of India; Sanjiv Mehta, MD, Hindustan Unilever; Ajay Piramal, Chairman of the Piramal Group; Sajjan Jindal, Chairman of the JSW Group of Companies; and Zarin Daruwala, CEO, Standard Chartered Bank, India also discussed a range of topics including the need to expand the banking sector, the importance and effectiveness of the Insolvency and Bankruptcy Code (IBC) 2016 as well as the need for Indian banks to be allowed to finance corporate takeovers and acquisitions.

“It was not a shock but a surprise. Why? Because it came at a time when the policy was announced only a few days ago. But it is a very timely step taken by the RBI considering the fact that the kind of inflation numbers that we saw and also the kind of trajectory, which was visible at that exact moment, given the global scenario,” SBI said Khara.

He added that the RBI will “watch inflation figures very closely and therefore calibrate interest rates, if necessary in the future.”

Jindal said he was surprised not by the timing but by the relatively low quantum of the hike.

“I was surprised instead that it didn’t rise enough, although that affects me as a borrower, but we still haven’t had such a long period of such benign interest rates.”

Piramal said the rate hike and 50 basis point rise in the cash reserve ratio (CRR), however, will not hurt corporate investment spending.

“I don’t think the capital expenditure is going down today as I feel there is a demand for Indian products in India and abroad. At most, we would watch for a few more months to see how things go but overall, at least in my opinion, it’s still optimistic,” he said.

Daruwala added that banks were quite keen to lend, but it was credit growth that was slowed. “The debt ratio of the biggest companies if you look at some of the listed companies, it goes down to a debt ratio as low as 0.6. So to that extent, with banks having lower net NPAs closer to 2% and with excess liquidity and very resilient and very strong corporate balance sheets, I think that, in my view, as bankers, we would be very willing to lend”.

Most consumer goods companies are seeing weaker sales volume growth as steady price increases have forced people to cut household spending and the omicron wave has impacted out-of-home consumption.

“When you reach a situation where the common man reduces the consumption of soap or detergent powder, then it becomes a cause for concern. I don’t believe this is demand-driven structural inflation,” HUL’s Mehta said.

He however added that India should not be trapped in stagflation and the Reserve Bank will need to ensure that it is balanced so that growth is not stifled but at the same time inflation is brought under control. .

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