The Hindu Business Line : New funding strategies

Just how much the organised economy’s response to policies has undergone a change for the better has been evident in a number of ways over the past six months. When the Reserve Bank of India (RBI) began to allow the rupee to find its own levels, there were fewer voices raised in protest at the rupee’s strengthening than there would have been a few years ago, when the central bank was expected to please both exporters and importers and sometimes failed to do eit her. Now producers may wince but quickly redraw their strategies to retain market share in the face of what would have been seen in earlier days as an adverse circumstance. So it is with the tighter interest rate regime.

Data for March to August this fiscal suggest that the growth in total bank credit (both food and non-food credit) has nose-dived to Rs 9,132 crore from Rs 66,950 crore in the same period last year. Of this total, food credit declined in absolute terms by Rs 8,162 crore over the six months this year compared with Rs 4,156 crore last year. Non-food credit increased in absolute terms but its growth declined dramatically from Rs 71,106 crore last year to Rs 17,294 crore in the current period under review. While food credit thus still occupies less attention than policy-makers would have us believe, clearly monetary policy is beginning to have an effect on credit for the rest of the organised economy. While it is possible that the down-swings are seasonal, it is interesting that corporates are seeking fresh sources of funding. Till not so long ago, external commercial borrowings (ECBs) were a cheaper source of credit for the larger firms, as were foreign currency convertible bonds (FCCBs). With the RBI tightening both borrowing and usage norms, those routes are narrowing; the data show a dip in the number of companies taking the FCCB route, partly as a result of global volatility in the credit and equity markets.

What is pertinent, however, is that companies are not too fazed by these developments, which seem to spell a constriction of the multiple funding options that the reforms had opened up. Investments, especially in high-cost projects, rose sharply — (60.2 per cent) in 2006-07 over the previous year. Reflecting optimism, companies are also dipping into their resources, with some redeeming their bulk deposits. While it is still too early to gauge the effects of restrictions on ECBs and the volatile global scene on corporate funding for the next phase of growth, clearly the period when the private sector looked to New Delhi for relief seems to be coming to an end.

Related Stories:
Bank loan growth hits lean patch
‘FCCB issuances this year slowing down’
External borrowings becoming more expensive

More Stories on : Editorial | Overseas Borrowings | Credit Market

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
New funding strategies

The 2007 Frankfurt Motor Show — A finger on the pulse of the industry

The great Indian family business

Peak oil: Facts converge with theory

Whither India’s democracy?

RBI Annual Report 2006-07 — Focus on financial stability

Air connectivity

Growing market