The Hindu Business Line : India Inc worries as bank loans turn scarce

Hard cash!
Companies tighten inventory and increase efficiency to tide over difficult times
Owing to liquidity crunch, banks turn selective with big-ticket loan disbursals
Banks seek higher margins and greater security for big projects, especially real estate

Our Bureau

Mumbai, Oct 10 At the receiving end of cautious banks, corporate India does not see reprieve around the corner. Acquisition and capacity-expansion plans are on hold, with moves to tighten inventory and increase efficiency to tide over the difficult economic environment.

Banks have become selective, with lending depending on both the bank and the customer, observes Mr Ajay Piramal, Chairman of the Piramal Group. Although banks are still lending to strong companies, there has been a tightening, he said. Overall, banks are hesitating and there is a liquidity crunch, he added.

His observation came even as the country’s growth in industrial production plummeted to 1.3 per cent in August, as compared to 10.9 per cent a year ago, reflecting bleak economic prospects.

Selective lending

Admitting that banks are selective with big-ticket loan disbursals owing to liquidity crunch, a senior official from State Bank of India said loans for big projects were being monitored more carefully, especially real estate loans, for which the bank is asking for higher margins and greater security. “We are being careful about big projects and are examining various parameters, because we are dealing with a scarce commodity,” he said, referring to the cash crunch.

However, retail loans such as housing and car loans, as also loans to small-scale enterprises and the agriculture sector have not slowed down, he added.

Hopes up on CRR cut

Responding to the Reserve Bank of India’s move to cut the Cash Reserve Ratio by 150 basis points, Mr Virendra D. Mhaiskar, Chairman of IRB Infrastructure Developers Ltd, hoped this would infuse some liquidity into the system, which had almost dried up.

It was unfortunate that the effort to cap runaway prices in the real-estate segment had clogged funds across all sectors, more importantly manufacturing, he said.

For instance, auto ancillary company Setco’s ongoing projects or other finalised plans do not seem affected by the liquidity crunch, though its future acquisition plans stand to get affected.

‘Difficult to expand’

“We are not diverting revenues from our business to other projects. We are reinvesting it in the auto ancillary business itself. Therefore our existing plans are not affected,” said Mr Harish Sheth, Chairman and Managing Director of Setco Automotive, a leading clutch manufacturer.

“However, future acquisition plans may get affected if the banks are not able to finance such moves,” he added. The Rs 210-crore Setco had acquired two manufacturing facilities in the US and the UK, besides forging a joint venture with German-based FTE in January 2008 for making clutch actuation systems.

Drug-maker J.B. Chemicals’ Director, Mr D.B. Mody too is emphatic that companies will not invest in capacity expansion and acquisitions at least till December.

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