Big Businesses Urge Government To Enhance Overdraft Limits To Fight Cash, Working Capital Crunch
Stories from India Inc. on surviving the demonetisation-led cash crunch.
Praveen Sood, chief financial officer at Hindustan Construction Company Ltd., is glad for the timing of the government’s demonetisation move – his company had already paid salaries by then. “So far we haven’t faced any problem,” he said when asked about the cash crunch that is paralysing small and medium sized businesses and has prompted serpentine queues at banks and ATMs.
If the problem persists then work will be disrupted. We need to figure out how to pay workers next month. Many of our sites are far away from bank branches. It will be tough to convince workers to accept cheques or other non-cash forms of payments.Praveen Sood, CFO, HCC
Sood is refering to labour at construction sites, as otherwise most companies of HCC’s size pay salaries via bank transfers and cheques.
Enhance Overdraft Limits
As citizens line up to withdraw limited amounts of cash, consumer goods companies are worried about the postponement of purchases. An official at one such company told BloombergQuint, on the condition of anonymity, that immediate credit disbursement is required to restore some relief in the system or else consumption and business activities will come to a grinding halt. The company has urged industry bodies to petition the government to extend bank overdraft limits until December 31.
The official explained that in any consumer company supply chain, the wholesalers rely heavily on cash and they, in turn, provide liquidity to retailers across the country, especially in far flung rural areas where banks may be scarce. Current restrictions on cash withdrawals are hurting suppliers’ ability to make payments, which when combined with fewer consumer purchases could grip the system in a chokehold. A wholesaler used to accepting cash payments from a retailer will hesitate to accept a cheque in the fear that it may not be honoured. Hence, bolstered by the over Rs 3 lakh crore deposited in the past week, banks should extend credit to their business clients including wholesalers and retailers, via a higher overdraft limit not requiring additional collateral or documentation, he said.
He added that the government and RBI should move fast as matters were reaching a critical state this week and some smaller retailers were already in the danger of shutting down.
HCC’s Sood said an enhanced overdraft limit would have a limited impact on those lower down the supply chain who so far have been transacting only in cash. “They are used to dealing in cash. Otherwise record keeping and tax registration etc would come into play,” he added.
Offering Credit For The First Time
A leading pharmaceutical company has responded to the cash crunch across its distribution chain by extending, for the very first time, credit to its stockists. A company official told BloombergQuint that starting Monday it has moved from working on advance payments to now offering a 10-day credit period to stockists. Speaking on the condition of anonymity he said, the lack of sales for a day or two and similar moves by competitors had prompted his company to offer similar credit terms to its stockists.
On whether an extended overdraft facility would help businesses and their supply chains, he said that depended on the depth of relationship such intermediaries have with banks.
In a recent speech Prime Minister Modi asked for 50 days to return the cash economy to some degree of normalcy. Big businesses may survive the period, but how long will the smaller ones hold their breath?