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Impact of Interest rate Hike on SME

Date : January 31, 2011
Number of Views : 1307

Reserve bank of India is about to announce another hike in interest rate for curbing inflation. Nobody knows, least of all RBI, if inflation will indeed show some downward trend following latest rate hike or will continue to rise - as happened after past rate hikes.

However, one thing is sure - latest interest rate hike will adversely affect all businesses - specially Small and Medium Enterprises (SME).

As per one study by CRISIL, every percentage hike in interest rate cuts SME profit by as much as 14 percent. Yes ! It is true - every one per cent increase in interest rates would lead to an average decline of 14 per cent in small-and-medium-enterprises' (SMEs) profits. According to the report, the decline in profits could be even 25 per cent or more in case of some SMEs.

The CRISIL study covered 3,234 Small and Medium Enterprises (SMEs) with sales turnover ranging from Rs 1-crore to Rs 500-crore and included manufacturing, trading and service companies in 30 industries across 20 states.

News Category: Financial Services / Banking / Insurance

News Type : Govt Policy
Market News


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