Rate Hike: Consumer Durables Firms to feel Pinch
Wednesday, 26 October 2011, 23:53 IST
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The Reserve Bank of India's (RBI) move to hike key rate by 25 basis points will impact consumer durables firms that are offering interest free schemes on purchase of items but the companies have decided to take the hit in order to keep sales momentum going during the festive season. Firms like Panasonic, Sony and Samsung admitted that their cost of offering "zero per cent interest" schemes will go up. On an average, the companies are shelling out around 2.5% of their sales on such initiatives. "If rates increase further the financial impact [on companies] would increase...But end consumers will not be affected as the company is currently taking all the costs, paying interest to the banks," Panasonic India Marketing Director Manish Sharma said. According to him, Panasonic India spends about 2.5% of its total sales on running such schemes. Expressing similar sentiments, Sony and Samsung also said there will be extra burden after the rate hike but such schemes are part of marketing investments for the festive season to boost sales for a short period of time. "The company is bearing extra cost of offering such interest free schemes but we do earmark certain investment as our marketing budget for the festive season and these schemes are part of it," a Samsung spokesperson said. Sony India General Manager Sunil Nayyar said the RBI's rate hike has come at a time when customers have just about come out of negative sentiments. "Sales have picked up in the last one week or so. Due to the tight monetary and economic situation, customers have been apprehensive," he said. Another major player LG, however, said the rate hike will have minimal impact. "We only sell five per cent of our premium products through finance schemes. So we do not have much effect because of it," LG Electronics India Chief Operating Officer YB Verma said. In its policy review meeting today, the RBI hiked interest rates by 25 basis points. The short-term lending (repo) and borrowing (reverse-repo) rates now stand at 8.5% and 7.5%, respectively.
Source: PTI
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