SMEs in the Pharma sector are adversely hit with the Reserve Bank of India (RBI) hiking the short-term lending and borrowing rates by 50 basis points (bps). This decision by the RBI has made corporate lending more dearer. The result is that banks have opted to either increase the tenure of repayment or increase interest rates. Interest rate hike is bound to decelerate growth. RBI’s move is a huge blow which will cascade on production costs and working capital. It puts a stop on new projects because borrowing is now unaffordable for SMEs.
The hike of repo rate of 0.50 per cent is 11th time in the last 16 months. This will lead to increase in base rate of all the banks and the working capital borrowing costs will accordingly rise higher. It will hurt the margins and growth of the pharmaceutical industry as well.
SMEs cannot absorb such a hit and this would drive many companies to bankruptcy. These increases have now reached a point where the policy is actually a burden. A section of the officials from the State Bank of Mysore and Canara Bank have stated that the higher interest rates would make money costlier and put the brakes on the ability of companies to purchase or invest thereby reducing growth.
