RBI credit policy: Rate cut to revive investor sentiment says GVK Power

Reserve Bank of India today, reduced the repo rate and cash reserve ratio by 25 basis points each. Repo rate, the rate at which banks borrow from RBI, has been cut by 25 basis points to 7.75 per cent. RBI has also reduced cash reserve ratio, the portion of bank deposits with RBI, by 25 basis points, to 4 per cent. Isaac George, CFO, GVK Power says it is a good move, in an interview to CNBC-TV18.

Also read: RBI cuts repo, CRR by 25 bps each He adds that this will revive investment and also allow banks to lend more. George is positive that this will perk up growth. Below is the edited transcript of his interview to CNBC-TV18 Q: What is your reaction to this quarter and quarter that the Reserve Bank has given? Will it alleviate some of your P&L pressures? A: Marginally yes. I personally believe that it’s a good move. First of all it will revive investment which is need of the hour today. The second aspect is that the 25 basis points cut in CRR will allow the banks to lend more. Both are the things are required at this particular juncture. I am positive that it will spur investment and revive growth too. As far as we are concerned, it will certainly make an impact on our bottom line. However, how much is something that we will have to calculate. Q: Will doing business gets a trifle easier? Down the road, make it easier for your eco system of industry? A: Certainly yes. This eventually has got to be passed on. Banks and leasing companies will have to pass on these benefits to us. With all this being passed on to the industry, the industry will be in a position to declare better results. There is absolutely no doubt that directly, the impact will be under profitability of the company. Q: Could you tell us how the debt situation would improve assuming through the course of the year we perhaps get additional 50 basis point cuts. What will be the direct impact on your interest cost outgo and therefore the entire gearing of GVK? A: As far as the quantum of debt is concerned that will continue to remain. Unless and until there is a repayment of the debt. This reduction in interest rates will increase our internal cash flows which will possibly facilitate to reduce debt. So, it is not going to be instantaneous. It will take time because we need to have cash accruals coming out of this rate cut and that will eventually repay the debt. Q: We have got a 25 basis point cut in Repo as well as CRR. Do you think that immediately you are going to see an increase in credit outflows, banks lending more credit to infrastructure companies? A: Logically it should happen. Banks will have more liquidity in their hands and they will have to lend it somewhere. It is their business to lend and make money. So, banks will be in a position to lend more. In fact banks should be going forward to lend more to infrastructure business. Q: What is the update on NHAI project? Has NHAI been able to mollify things or is it becoming a legal issue or do you still stand disjointed, disconnected with that project? A: I will not be answering this question. It is under judgment at this stage. The matter is in court and we will allow the courts to take a decision on that. There were some real good reasons for which we had backed out of the project. Eventually it will come out into the market. Q: Do you think that more people are going to follow suit, take the steps that you have taken? A: They need not necessarily take steps. We were affected badly that is why we took this step. There is talk going on that there will be more to follow. However, even I haven’t seen it. GVK and GMR have taken this decision because we were affected parties. I really don’t know that people can pull the same thing out of the hat without a reason whatsoever. So, I think we will have to wait and watch. Nothing much has happened because it is almost a month since we have given our termination notice. Thus, I cannot make statements.