A recent press report said that the Indian companies have currently stopped their expansion plans as the Reserve Bank of India has increased the key interest rates for the 13th time since March 2010.
The Chief Executive Officer of a secondary steel manufacturer said that they have held back their plans of expanding brown field as the cost of borrowing has increased considerably from the time they figured out the plan. He said that the company would put the expansion plans on pause due to the recent hike in interest rates and would get back to the plans once the rates start to slide down which were not expected to happen soon. The hike has made all loans including home loan, personal loan, auto loans, education loans etc. expensive.
The banks have not passed on the interest rate hikes during the month of September to the lending rates but it is expected to do so this time. An analyst said that most of the banks were running short of funds as the credit off take has tapered off. Besides as the profits of most of the banks have been squeezed off it could be expected that the banks would increase the interest rates.
According to Mr. Mudit Jain, President of DCW Ltd., the companies apart from rising borrowing costs the slowdown in demand and accumulating production costs might also seem to be affecting the companies’ expansion plans.