NEW DELHI: An increase in repo rate, which has a direct impact on lending rates, will adversely impact small businesses and retailers that are already in stress owing to the Covid-19 impact and soaring inflation.
Retailers with limited options are facing a challenging time as bank borrowings would mean extra costs and cutting down on borrowings will impact revival and growth, as per experts.
Arijit Malakar, Equity Research Analyst at Ashika Stock Broking limited said the rise in repo rate has a direct impact on retail loan demand. “It is estimated that the rise in interest costs for retail households and MSMEs could lead to a contraction in demand of as much as Rs 45,000 crore. Every 1 basis point increase in the repo has an impact of around Rs 305 crore on interest costs for retail & MSME consumers,” he said adding, that already-stressed MSMEs will find difficulty in servicing their existing & working capital loans and could refrain from borrowing a fresh loan.
Jyoti Prakash Gadia, MD, Resurgent India, agrees that Increased interest costs along with additional transportation costs will force MSMEs towards losses or increased prices of their manufactured goods. This in turn will lead to a fall in demand, thereby impacting the nascent revival of MSMEs.
“Searching for alternate sources of funding like PE or bonds is not easy and limited availability in this domain will not support the retailers.” Praveen Khandelwal, secretary-general, Confederation of All India Traders (CAIT) says, “Post Covid, small businesses are fighting for the survival of trade and trying to bring back the businesses on a minimum comfort level.”