Indian firms say credit still tight, see more steps

Indian firms are still finding liquidity conditions tight despite some aggressive moves by policy makers over the past two months, and more steps might be needed to keep credit flowing, senior executives said on Tuesday.

Analysts increasingly expect economic growth could slow to below 7 percent in the 2008/09 year ending March 2009, with forecasts 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 of interest rates," K. Chandrashekar, senior vice-president of corporate finance at Mahindra and Mahindra, India's top utility vehicle and tractor maker, told reporters at a corporate treasury conference in Mumbai.

The stock market is down by more than half in 2008, with sales by foreign investors a key factor, and industrial production has fallen away as rising costs and falling demand squeeze corporates.

Industrial output in August grew just 1.3 percent from a year earlier, the weakest rate in a decade, and a purchasing managers' index, based on a survey of 500 companies, dropped in October to the lowest level in its 3-½ year history.

Since the start of October, the central bank has slashed its key lending rate by 150 basis points and cut banks' cash reserve requirements by 350 basis points to keep credit flowing and shore up growth, among other steps.

P.K. Ghose, chief financial officer at Tata Chemicals, said the credit situation had improved, but banks remained wary of lending, especially to companies with high overdraft facilities.

"I expect the central bank to take more measures, and liquidity should ease by January or by the first quarter of 2009," Ghose said. Companies were borrowing at around 12 percent currently compared to around 14 percent earlier, he said.

Source: Reuters