UPDATE1-Bhushan Steel to cut output inventory levels

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MUMBAI, Oct 10 (Reuters) - Bhushan Steel Ltd (BSSL.BO: Quote, Profile, Research) has stopped buying raw material for steel production and plans to cut down output inventory levels, given the current liquidity problem, a senior official told Reuters on Friday.

"We are trying to reduce inventory levels so that it gives us some liquidity. We need to have 30 days inventory of raw material and finished goods. But we may now keep only 15 days or so," Chief Financial Officer Nittin Johari said.

The secondary steel maker, however, doesn't plan any production cuts yet, Johari said.

Tight cash conditions in the banking system have made it difficult for companies to raise working capital finance or borrow cash from banks, prompting the central bank to slash its cash reserve requirement to free up $12 billion in funds.

"Most of the banks have put a freeze on working capital finance or term lending. If this continues, there would be a big problem underway," Johari said.

Bhushan, which had planned a 50-billion-rupee greenfield project in Orissa, doesn't have any problems on its existing capex so far, he added.

Shares in the company, which hit a 52-week low of 520 rupees in early deals, were trading at 525.50 rupees, down 10.49 percent in the Mumbai market. (Reporting by Swati Pandey; editing by Sunil Nair)