Trade is facing acute liquidity crunch, says Hindustan Unilever CFO

Hindustan Unilever Ltd has said the trade, especially wholesale and smaller retailers is going through an acute liquidity crisis, which is a vital reason why rural markets are expanding at a slower rate than urban markets.

This has happened for the first time in the last seven years. Hindustan Unilever limited and other consumer goods companies have provided credit support in some cases over liquidity crunch that has gripped parts of the financial markets.

According to a report in Economic Times, HUL chief financial officer Srinivas Phatak said, “If you really look at some of the rural areas, at some of the central parts of the country, the overall liquidity crunch is actually coming again. We are working with many of our banking and financial partners to find the right kind of solution and support our distributors and that’s working well. In some select cases, we actually stepped in to support our distributors through credit.”

Phatak said cuts by central bank in the policy rate by a cumulative 135 basis points in 2019 to help revive the economy and steps to ensure such reductions were transmitted through benchmarking. A basis point is one-hundredth of a percentage point, reported Economic Times

“While many measures have been initiated, there still has to be the transference through the banking system. The liquidity still continues to be quite tight and, therefore, the improvement is some distance away,” Phatak said to ET

As per latest Reserve Bank of India, Credit growth at Indian banks is at its lowest in nearly two years at 8.8%. The liquidity crunch at nonbanking financial companies (NBFCs) has had a knock-on effect as this source has dried up for informal, rural and small & medium firms.

Earlier in October 2019, Marico said in its quarterly update that liquidity challenges had led to some correction in trade inventories and exerted pressure on channel partners’ investments and returns.