MUMBAI, SEPT 27: The general perception of the investors about the corporate sector is that most of the companies are facing liquidity crunch and struggling to cope with the general slowdown. However, going by the balance sheets of companies, this may not be entirely true. A host of companies are indeed sitting on huge cash balances in banks.Take the case of ACC which was reeling under sustained demand recession. This company's net profit actually declined from Rs 76.92 crore to Rs 13.44 crore during the year ended March 1998. However, the cash and bank balances of the company shot up from Rs 50.54 crore to Rs 65.58 crore. In the case of Escorts, the profit nearly stagnated at around Rs 129.84 crore. Here again, cash and bank balances of the company rose from Rs 62.86 crore to Rs 82.27 crore. Century Textiles of the BK Birla group which made a loss of Rs 85 crore - showed a higher cash balance of Rs 90.72 crore as against Rs 54.55 crore.ITC reported a sharp rise in surplus cash during the year1997-98. The cigarette giant's cash and bank balances spurted from Rs 82.91 crore to a whopping Rs 467.44 crore. GE Shipping's cash balance soared to Rs 94.69 crore from Rs 31.27 crore. Tata Tea, Hindalco, BSES, Thermax, Videocon International, United Phosphorus, Grasim, Colour-Chem, Telco, L&T, Bishanauth Tea, Crompton Greaves and Zuari Industries also showed a sharp jump in cash balances. A CMIE study of the balance sheets of 505 companies revealed that cash and bank balances had gone up to Rs 4,317 crore in 1997-98 from Rs 1,002 crore.Experts, however, feel that the rise in cash and bank balances held by companies is not a healthy sign. ``This money could have been deployed in a more effective manner by these companies. But they have chosen to deposit the money in banks. Here the interest charge is nominal when compared to other investment avenues. The rise also points to poor treasury management by various companies,'' said the senior partner of an audit firm.Even putting money in schemes like theUS-64 scheme of the Unit Trust of India is more attractive than keeping the money in bank deposits. UTI has been paying an annual dividend of 20 per cent on US-64 for the last three years. A depositor gets an interest rate of around 7.25 per cent for term deposits of 61 days to 90 days and 10.25 per cent for one year term deposits in banks.``Deployment opportunities are less these days. One reason for companies showing higher cash balances may be the current sluggish conditions in the capital market and delay in project implementation. Many companies are going slow in setting up new projects. Several companies have dropped their expansion and diversification projects. The corporate sector is hardly incurring any capital expenditure now,'' said the finance director of a liquor company, adding that companies were now focussing on restructuring and downsizing their operations.With the capital market in the dumps, corporates are not in a position to raise money for project implementation. Several companieslike Voltas are hiving off units as separate joint ventures in the changing business scenario. Significantly, a number of companies which used to lend money in the inter-corporate deposit (ICD) market are now avoiding this route in view of several defaults. The auditors of Colgate had qualified the accounts of the company for Rs 2.50 crore stuck in the ICD market.Corporate pundits feel the surplus cash situation is expected to continue in the current year as well. Things will change when the capital market picks up, the slowdown trend reverses and companies start spending on new projects. This is not expected to happen in the next one year.
