MUMBAI, July 10: The desired overall results of the cut in the bank rate effected by the Reserve Bank of India(RBI) last month would be felt only in the next quarter, according to SBI Capital Markets (SBI Caps).

Not withstanding the RBI figures of a turnaround in the credit-offtake to the commercial sector, the effect of a lower bank rate would be felt only after bank credit finds way to the mid-cap and second rung corporates, a research paper of SBI Caps said here. Easy liquidity conditions prevailing in the system led to lowering of the bank rate, thereby signalling a lower interest rate regime. ``However, high credit off-take is subject to banks lending to second rung corporates and pick up in the industrial activity'', it said.

Industrial activity was expected to pick up only in the second half of this fiscal, the paper said, adding, ``there has been no pick up in the industrial activity despite cut in the interest rates twice since October last''. On the impact of the cut in the bank rate on the markets, the paper said the debt market would witness lower yields on government securities, but as surplus liquidity drains over next few months, the yields would start going up. On effect of the bank rate cut on the equity markets, the paper said equities could expect better investment flows because of the possible shift in the preferences as returns from the debt markets would be reduced.

``Besides investor shifts, with lower interest rate expenses, corporates would show better bottomlines'', it said.

Medium and small cap corporates were feeling the pinch of the banks' reluctance to lend and were laying heavy emphasis on borrowings through the commercial paper (CP) route, where the interest rate were still lower.Though the bank rate cut would improve the overall sentiments in the market, the desired effect would be felt only after banks lend more proactively to the second rung corporates, SBI Caps said.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.