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The March-end syndrome

N.S. Vageesh

CHENNAI, March 30

IT'S that time of the year when bankers burn the midnight oil processing hundreds of proposals for bank credit. End-March is the period when their clients seem to pursue business with a frenzy that was absent during the rest of the year. All with the int ention of either beating or reaching the targets fixed for the year before the March 31 deadline.

For companies, what is done or not done during these few days gets reflected as either growth or stagnation in the year's balance sheet. (It's another matter that sometimes what gets done in the next few days also goes into the previous year's performanc e.)

For bankers too, it is a fortnight of hyper activity as their advances get ramped up. For certain public sector banks the incremental credit in the last fortnight of March alone often runs into a thousand crore rupees.

A number of factors explain this sudden pick-up. One, there is a seasonal demand, especially from exporters in industries such as textiles and leather for whom the busy season begins in December-January. Secondly, the interest on advances made during the quarter also gets booked during this period, thus pushing up the total advances.

Further, there are advance tax payments that customers have to make, leading to higher utilisation of bank credit. As businesses are also pressed for payment by their suppliers (who want to show improved collections), there is further pressure on bank cr edit. In the current year, there is also an increase because of interim dividend payments from a large number of companies trying to beat the March 31 deadline; after that date they would have to pay a higher 20 per cent tax on dividend disbursements.

Of course, there is also pressure from clients who wish to make some major purchases _ a vehicle or equipment or investment on windmills etc. during this period to take advantage of income-tax provisions which allow you to claim depreciation expenses for six months even if they were purchased in end-March). Bankers, however, say that the pressure from this category has reduced after the amendment in the I-T Act a couple of years ago which reduced the claim to six months from the full-year claim that the y enjoyed earlier.

Foreign banks, however, have a problem of a different kind. They need to tread softly on credit proposals as they may run into capital adequacy problems. Often, their clients are requested to reduce their drawings/limits during the last month. In some f oreign banks,there is also a `go-slow' mode when marketing for new business during this period.