Prajna Capital - An Investment Guide

An increase in the repo rate has put small businesses on the back foot yet again. How will they cope this time? IT is well known that small and medium enterprises ( SMEs ) are among the worst affected, when interest rates rise rapidly. Accordingly, these companies have been starved of funds of late, with the surge in interest rates in the last few months threatening to cripple their growth. In such a scenario, further rise in interest rates was the last thing these companies were expecting. But, contrary to such hopes, the Reserve Bank of India ( RBI ) early in June hiked the repo rate—the rate at which banks borrow from the central bank for short-term—as part of its attempts to contain inflation. The hike at 25 basis points raised the repo rate to 8% has resulted in the banks’ lending getting costlier. This has left SMEs fuming as it comes at a time when they are coping with rising raw material costs and an uncertain business outlook. Domestic apparel supplier Bang Overseas is among ...