Indian companies are looking for options other than bank loans to fund their expansion plans. A strong recovery in the economy seems prominent but Indian banks are sitting on lot of capital mainly from private equity placements and overseas borrowings.
Over two-thirds of financing requirements of the companies during the April-September period came from non-banking sources. Official data revealed that there had been a sharp drop in bank credit to commercial sector in the first half of the current fiscal.Firms prefer unconventional sources like qualified institutional placements (QIPs) of shares sold at mutually agreed price, borrowings from overseas banks that cost them relatively less and bonds issued by the companies. In 2009, companies have raised about Rs. 32,558 crore through the QIP route.
"Though the growth of credit has been significantly low despite recovery in the economy and is becoming a cause for concern, large number of corporate houses has gone in for non-banking sources of revenue," a senior Finance Ministry ministry said.
External Commercial borrowings (ECBs) are cheaper by nearly three percentage points compared to domestic banks. While loan from overseas banks are available at an interest rate of 8 percent, the interest rate charged by domestic banks is over 11 percent.
JM Garg, Chairman and Managing Director, Corporation bank said, "With sentiments remaining low for most part of the year, companies were focussed on cost saving measures."
Demand for bank credit is likely to remain low over the nest few months amidst signs that the Reserve Bank of India (RBI) would hike interest rates to control inflation.
According to DK Joshi, chief economist, Crisil, with rising inflation, the apex bank is expected to adopt some corrective measures.