Until the past fiscal year, credit fed people’s wild dreams and also helped realise them. But then the fall of some of the top financial institutions and banks globally put things into perspective. Credit, which was available cheap and without the due diligence or the credibility check of the companies and individuals, dried out.

The past one year was the bad for many companies across sectors – realty, metals, auto, retail and capital goods . All have seen a decline in their profit margins and the share prices have touched all time lows. The primary reason analysts and experts say was the lack of consumer demand and bank’s averseness towards lending as they turned apprehensive of loans going bad.

However, despite the grim environment, things are expected to take a positive turn from March 2009 onwards as analysts and bank officials predict the falling commodity prices and slew of central government measures would start to loosen the tight credit situation.

“Bank averseness was in response to the fall of major banks globally and drop in consumer demand. However, the reaction was abnormal. With no negative news coming in, some improvement can be seen in the month of March. It will get better after the general election in May-June 2009,” said PricewaterhouseCoopers director Pankaj Wadhawan.

Arun Nanda, executive director, Mahindra & Mahindra, at a KPMG meet on ‘India Goes Global,’ said if the bank finance were available to the auto sector, the auto sales would have dropped just 2-3 per cent, against the real fall of 15-16 per cent.

“It is not the banks averseness to lend but the consumers averseness to purchase which has led to reduced bank lending. Banks are mere catalyst and not the drivers of demand. If the consumer doesn’t want to purchase, we can not do anything,” said IDBI Bank executive director S Ananthakrishnan.

“All the companies expect their Q4 results to be better than Q3, but the stabilisation will take place in late quarters of the coming financial year,” Ananthakrishnan said.

Bank officials said merely cutting the interest rates is not going to increase demand, but companies, especially the real estate firms, will have to cut prices too. Although 20-30 per cent correction has been witnessed in real estate prices, another 5-10 per cent fall is expected in the short term , after which demand will pick up and so will credit lending.

The economists say that the Reserve Bank of India (RBI) should adopt an easy money policy. The rate at which banks park their surplus funds with RBI should be cut drastically to persuade them to step up lending to commercial sector.

“The whole effort should be directed to augment the demand for goods and services, which in turn will create demand for funds from companies to ramp up their investment activities,” said chief economist at Care Ratings Soumendra Dash.

The wholesale price index (WPI) inflation has declined to 3.92 per cent for the week ended February 07, 2009 and it may touch 0.5 – 1.0 per cent by the end of March 2009. If this trend continues further, then the Indian economy will enter into the territory of negative inflation.

The falling headline inflation rate could prompt RBI to cut its key policy rates at least by 100 basis points to ensure that the banking sector has enough of funds to increase the credit growth rate at a faster pace before the crisis precipitates and slips away from the hands of policy makers of Indian economy,” Dash added.