New govt have to take urgent steps to improve liquidity: India Inc
Measures to tackle the NBFC crisis, relaxation in bank borrowing norms, boost to capital market activity and larger public infra spends top the wish list of corporates’ expectations from the new government.
Measures to tackle the NBFC crisis, relaxation in bank borrowing norms, boost to capital market activity and larger public infra spends top the wish list of corporates’ expectations from the new government, particularly since a spate of downgrades following the NBFC crisis led to a squeeze on liquidity.
“We are seeing a slowdown in Indian markets driven by liquidity issues. This has led to holding back of finances by banks and NBFCs and affected consumption spending too,” said JSW Group CFO Seshagiri Rao.
Post elections, the two main elements that drive growth -- consumption and private investment -- need to be addressed; more so, since exports and private investment have remained weak in the past few years, Rao explained. While government spending has remained the main focus in India, unless private investment gets a boost, the economy won’t be ticking again, he said.
GR Arun Kumar, Group CFO, Vedanta group, endorsed the view, saying apart from credit growth by banks, public spending on infrastructure would be the key to firing up growth and private investment.
Corporates are also looking for relaxation in rules to raise funds from banks to ensure a pick-up in private investment.
JSW’s Rao felt that there’s a need to ease rules for corporates to raise funds from banks in the absence of which private investment is unlikely to grow. “There needs to be some relaxation in bank borrowing rules. Our prudential guidelines are ahead of the times," Rao said. For instance, according to Basel III norms, while capital adequacy ratio is 8% internationally, in India it is 9%. At present, a corporate can raise half its fund needs from banks. However, any incremental requirement over 50% has to be met from the capital market.
"There is need to free up statutory ratios, liquidity and enable bank lending and perhaps accommodate mild inflation to spur growth,” Vedanta's Arun Kumar said.
“The new government should also take quick measures to encourage capital market fund raising activity,” he said, adding, “especially incoming FII/FPI flows into the country as there is always a demand for the India growth story, if well presented.”
He also reckoned removal of tax on capital gains on shares -- introduced some time ago -- will encourage capital market activity. Also, a speedy dispute resolution, including NCLT process, would get the blocked capital to work and generate returns.