Banks have been slow to reduce lending rates even as there is no discernible improvement in the clients' ability to pay on time. For these players, therefore, it's a double whammy.

Indeed, though repeated action by the Reserve Bank of India in terms of policy rate cuts and constant urgings have compelled them somewhat to lower rates, the reductions are yet to reflect in the working capital cycle, which began expanding about six months back.

In fact, say the contractors, the cycle has stretched further in some cases.

For a contractor, working capital cycle is the period intervening the date it takes a loan from a bank to do some work for a client, and the date it gets paid by the client.

When the client defers payment, the contractor will not only find it difficult to repay the loan on time, but also need another loan to keep work going, leading to expansion of the cycle.

Real estate accounts for much of the troubles.

According to Arun Sahai, chief executive officer of New Delhi-based Ahluwalia Contracts, which is a contractor for real estate developers, things are going from bad to worse. "The lending for the real estate sector has been further squeezed."

Among others, Emaar MGF, which is developing the 2010 Commonwealth Games village in New Delhi, owes the company Rs 95 crore, says Sahai.

Notably, the squeeze had led to the working capital cycle expanding from 90 days to 120-140 days a few months ago, which hurt the contractors working for real estate developers the most.

Source: dnaindia.com Infra players are still stretched for working capital