How do Firms in India Finance Themselves

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Presentation transcript:

How do Firms in India Finance Themselves

Sources of Funds of Mfg Corporates (% to total funds)

Internal Resources are mostly Depreciation Charges (% to total funds)

Equities continue to Dominate Capital Markets (% to total funds)

Debt Dominates External Borrowings (% to total funds)

Cost of Borrowing has Declined

Investments Growth has Slowed.

Decline in Investments Outstanding (Mfg.) (Rs. crore)

Financing Issues Affect 30% of Projects No Response (27%) No Problem (43%) Serious Problem (5%) Problem (25%) Total Sample Surveyed: 304 CMIE

Promoters find Funding Issues to be a Problem Totally, about 30% of the respondents considered finances to be a problem in implementation. Problem Seriously Mildly Problematic Problematic Availability of Equity 5.6% 26.6% Availability of Loan 8.9% 29.6% Cost of Finance 1.3% 19.7% The Cost of Funds is not considered to be as big a problem as the Availability of Funds. CMIE

Promoters find Funding Issues to be a Problem Cost of Funds are not a problem. Interest rates have declined significantly in the past five years. The PLR has declined from 15.5 to 12% Availability of Funds is a problem This is concentrated amongst those projects which have suffered time and cost overruns. Financial institutions have stipulated stiff conditions on disbursal of sanctioned funds in the case of such projects. Funding should not be a problem because banks are flush with funds CMIE

Availability of Funds is not a Problem It is possibly a Credibility Problem Most of the companies that responded to say that the availability of funds is a problem were those that had been denied funds because of their poor performance. These are mostly steel projects. 8 of the 16 metals projects surveyed complained of serious problems with respect to availability of funds. FI’s have recalled loans & demanded restructuring. Some of them have over diversified. Most of the companies that reported lack of availability of funds were also sick or loss making. CMIE

Banks Resist Lending to Corporates Banks have been the major source of financing the corporate sector in the past. But, in the past 1-2 years banks are reluctant to finance corporates any further. Banks find better spreads (over six per cent) and lower NPAs (less than one per cent) in lending to the retail consumer. The Corporate Sector needs to improve Credibility.

Thank you