Indian firms say credit still tight, see more steps
November 11th, 2008 | by admin |By Saikat Chatterjee
MUMBAI, Nov 11 (Reuters) - Indian firms are still findingliquidity conditions tight despite some aggressive moves bypolicy makers over the past two months, and more steps might beneeded to keep credit flowing, senior executives said onTuesday.
Analysts increasingly expect economic growth could slow tobelow 7 percent in the 2008/09 year ending March 2009, withforecasts being downgraded as fears of a global recession grow,from rates of 9 percent or higher in the past three years.
“We have not seen any sharp slowdown in business so far,but there are issues of funding and there are issues ofinterest rates,” K. Chandrashekar, senior vice-president ofcorporate finance at Mahindra and Mahindra (MAHM.BO: Quote, Profile, Research, Stock Buzz), India’stop utility vehicle and tractor maker, told reporters at acorporate treasury conference in Mumbai.
The stock market is down by more than half in 2008, withsales by foreign investors a key factor, and industrialproduction has fallen away as rising costs and falling demandsqueeze corporates.
Industrial output in August grew just 1.3 percent from ayear earlier, the weakest rate in a decade, and a purchasingmanagers’ index, based on a survey of 500 companies, dropped inOctober to the lowest level in its 3-½ year history.
Since the start of October, the central bank has slashedits key lending rate by 150 basis points and cut banks’ cashreserve requirements by 350 basis points to keep credit flowingand shore up growth, among other steps.
P.K. Ghose, chief financial officer at Tata Chemicals(TTCH.BO: Quote, Profile, Research, Stock Buzz), said the credit situation had improved, but banksremained wary of lending, especially to companies with highoverdraft facilities.
“I expect the central bank to take more measures, andliquidity should ease by January or by the first quarter of2009,” Ghose said. Companies were borrowing at around 12percent currently compared to around 14 percent earlier, hesaid.
The central bank’s main lending rate is at 7.5 percent.
Ajit Ranade, chief economist for the Aditya Birla Group,said investment spending was slowing after growing at ancompounded annual average rate of 20 percent over the past 4 to5 years.
“We probably hit the peak sometime earlier this year andnow we are on a cyclical downtrend,” he told the gathering.
Last month, the central bank trimmed its growth projectionfor 2008/09 to 7.5-8.0 percent, while some private forecasters,including Goldman Sachs, see growth below 7 percent.
Annual car sales fell for the third time in four months inOctober as automakers struggle with high borrowing costs andslowing demand, an industry body said on Monday.[ID:nDEL392440].
Tata Motors, India’s top vehicle maker, has said it willshut some plants temporarily to avoid a build-up in inventory,and Ashok Leyland, the number two bus and truck maker, iscutting production to three days a week for the rest of theyear.
Some executives saw opportunity in the gloom, as Indiawould keep growing, it had a young and growing population, andthere was still a lot of potential for firms to expand in thecountry
