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The Reserve Bank of India’s (RBI) recent move to increase repo rates by 40 basis points was much needed to tackle surging inflation, and more such steps may follow, said top bankers and industrial bigwigs at a star studded ‘The Economic Times Awards for Corporate Excellence, 2021’ held on Saturday. They however added that the rate increase is unlikely to hurt capex plans of corporates with domestic and international demand continuing to be strong.

During a discussion on Saturday, eminent panellists Dinesh Kumar Khara, chairman, State Bank of India; Sanjiv Mehta, MD, Hindustan Unilever; Ajay Piramal, chairman, Piramal Group; Sajjan Jindal, chairman, JSW Group of companies; and Zarin Daruwala, CEO, Standard Chartered Bank, India also discussed a range of topics, which included the need for expanding 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 fund corporate takeover and acquisitions.

“It was not a shock but a surprise. Why? Because it came at a point when the policy was just announced a few days back only. But it’s a very timely action taken by the RBI considering the fact that the kind of inflation numbers which we have seen and also the kind of trajectory, which was visible at that material point of time, keeping in view of the global scenario,” SBI’s Khara said.

He added that the RBI will be “very closely watching the inflation numbers and accordingly, will be calibrating the interest rates, if at all required going forward.”

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

“I was surprised on the contrary that it’s not increased enough, though it affects me as a borrower but still we have not had such a long run of such benign interest rates.”

Piramal said that the rate hike and the 50 basis points hike in the cash reserve ratio (CRR) however won’t hurt capital expenditure at corporates.

“I don’t see capex being dampened today because I do feel that there is demand for India’s products in India and outside. At the most, one would watch for a few more months to see how things are but overall, at least in my view, it is still optimistic,” he said.

Daruwala added that banks were quite keen to lend but it’s the credit growth which has been muted. “The debt to equity of the top corporates if you look at some of the listed companies, it’s coming down to as low as 0.6 debt to equity ratio. So, to that extent, with banks having lower net NPAs, closer to 2% and with surplus liquidity and corporate balance sheets being very resilient and very strong, I think, to my mind as bankers we would be quite keen to lend”.

Most consumer goods companies are witnessing lower sales volume growth as consistent price hikes forced people to cut back on household spending, and the omicron wave impacted out of home consumption.

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

He though added that India should not get entrapped in stagflation and the Reserve Bank will have to ensure to balance it in a manner that growth is not stifled, but at the same time, inflation is reined in.

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