Private placement of debts doubled, but capex remains limited

KOLKATA: Stickiness in bank lending rates has helped the private placement of debts zoomed but fresh capacity expansion in the economy still remained limited.
As many as 2656 debt issuances took place through the private placement route last fiscal, compared with 1372 in the preceding one, since companies junked costlier bank loans. However, the debt market remains largely confined to financial institutions, and corporates remained on the sidelines.

According to Reserve Bank of India’s latest data, about 77% of these companies are financial institutions -- mostly non-banking finance companies, indicating that fresh industrial capacity expansion remained muted last year.

Just about 620 out of 2656 issuers were non-financial companies. They raised Rs 127700 crore between them. Total fund raised through the private placement route was Rs 446484 crore, 12% more than the preceding year, RBI statistics showed.

"Financial institutions, especially non-banking finance companies (NBFC), used the private placement route instead of taking bank loans. A major part of the fund raised may not be for fresh investment purpose," CARE Ratings chief economist Madan Sabnavis said.

Private placement of debt has been a preferred option for companies raising capital. It was easier than making public issues and less expensive as bank loans remained costly last year.

"The substitution took place because of the inherent problem in the banking channel," he said.

RBI started lowering the repo rate, the benchmark short term rate for the economy, from January only.

Private sector companies were more active in the private placement debt space last fiscal with 2436 companies using this route while just about 220 public sector companies had privately placed debts.

While private placement market grew, the lack of depth in corporate debt market has been a concerns for policymakers as the absence of a liquid corporate bond market acts as a deterrent to investor participation. This holds importance for India’s huge and ever growing capital funding requirement. The absence of a robust corporate debt market leads to over-dependence on banking system and may create distortions in any economy.

"Concerted efforts from all market participants is required to develop and grow the largely untapped potential of the country’s corporate debt markets," RBI Deputy Governor R Gandhi had said in March.