In a bid to deleverage their balance sheets, top 50 Indian companies have reduced their debt by Rs 59,600 crores in the first half of this fiscal year.
These companies had reduced their debts by about Rs 43000 crores in FY 2018-19, as per the sources.
According to sources, the move holds significant relevance to the credit growth of banks as the companies borrowing loans from local lenders has reduced.
Indian companies are seeking other funding methods that provide loans at much lower rate when compared to banks. Instruments like External commercial borrowing (ECB) is a viable alternative outside the banks. Besides, the domestic companies have worked to reduce their debts in response to the present legal framework.
According to the recent Reserve Bank of India (RBI) data, the foreign borrowings of India Inc amounted to USD 3.41 billion in October 2019 which was a major jump from USD 1.41 billion in October 2018.
The same data on borrowings from external markets shows that USD 2.87 billion was through automatic route of ECB while USD 538 million was through the approval route of ECB.
“The consumer credit segment, given the monetary stimulus and regulatory measures, has grown robustly even as wholesale credit growth nudges lower and firms and financial intermediaries are in the process of deleveraging and improving their business practices,” said Shaktikant Das, RBI Governor.
According to data on sectoral deployment of bank credit, non-food bank credit growth increased to 8.3 per cent, credit growth to industry slowed down to 3.4 per cent and personal loans growth increased to 17.2 per cent in October 2019 as opposed to October 2018.
As per investment information agency ICRA, the year-on-year growth in bank credit is likely to slow down to 6.5-7 per cent in FY20 from 13.3 per cent in FY2019, following limited incremental credit growth during this fiscal year till date.
“The incremental bank credit has increased by only Rs. 0.80 trillion during FY2020 till December 6, 2019 to Rs 98.1 trillion, in contrast to the rise of Rs. 5.4 trillion and Rs. 1.7 trillion during previous corresponding periods of FY2019 and FY2018 respectively,” ICRA said.