High interest rates, strict credit may hit bottomlines: Ficci

Rising interest rate and stricter credit availability are the two major concerns for India Inc and would affect its performance, according to the latest business confidence survey (Q1 of 2008-09) conducted by the apex chamber, Ficci.
The survey reveals that the bulk of small and medium enterprise (SME) sector is worst affected and that its interest cost has gone up by 3.5% to 5.5% over the last one year.
In contrast, the interest cost of large companies has gone up by 1.5% to 2.5% over the last one year.
In the global context of acute competition and overall slide, the high cost of credit, reduced availability of funds and weak demand have created added hardships for the Indian corporate in the globalised market.
Nearly 75% of the participating companies in the survey agreed that banks have tightened their credit disbursal norms over time and thereby restricted the availability of credit to industry.
Further, nearly 97% of the participants agreed that it is the SME sector that is facing the pressure most on account of the hardening interest rates. Given the present situation and the deteriorating performance of the SMEs, there is a strong demand that the RBI in consultation with the government should look at a scheme that offers productivity-linked benefits to SMEs.
This proposal found favour with 82% of the survey participants.
Ficci’s survey drew responses from 348 companies in the heavy and light industry and the services sectors with a wide geographical and sectoral spread.
Companies participating in this survey had turnover ranging from Rs 1 crore to Rs 1,26,000 crore.
Respondents to the survey were largely from sectors such as cement, pharmaceuticals, textiles and apparel, leather, FMCG, heavy equipment and machinery, banking, insurance, real estate, IT & ITES, paper, metal and metal products, chemicals, auto & auto ancillary and steel.
The prime lending rate (PLR) of banks has moved up from 10% to 10.5% a year ago to 13% to 13.5%.
The survey also shows that over the last 12 months the interest rate for companies has gone up in the range of 150 to 550 basis points which is 1.5% to 5.5%.
The rise in interest rates is seen as having a direct impact on the investment activity of the companies. 48% of the companies that participated in Ficci’s latest survey have reported that they are reconsidering some of their project investments. are going ahead with their scheduled investment plans, a clear discernable trend of dependence on internal accruals to support investments is seen.
In the light of these findings, Ficci is of the view that the central bank must consider lowering of the interest rates as this is adversely affecting industrial performance and overall growth momentum in the economy.

Source : Financial Express