Private placement of debt doubles, financial institutions lead the show

KOLKATA: As many as 2,656 debt issuances took place through the private placement route last fiscal, compared with 1,372 in the preceding one as companies avoided costlier bank loans. However, the debt market was largely confined to financial institutions, while companies remained on the sidelines.

According to the latest Reserve Bank of India data, about 77 per cent of these were raised by financial institutions, mostly non-banking finance companies, indicating that fresh industrial capacity expansion remained muted last year. Of the total, 620 were by non-financial companies, which raised Rs 1.28 lakh crore. Total funds raised through the private placement route amounted to Rs 4.46 lakh crore, 12 per cent more than the preceding year, RBI statistics showed.

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

Private placement of debt has been the preferred option for companies raising capital, being easier than public issues and less expensive than bank loans.

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

The RBI started lowering the repo rate, the benchmark short-term rate for the economy , in January .This has been cut by a cumulative 75 basis points since then but the RBI has had to push banks hard to transmit the reduction to the borrowers.

Non-state companies were more active in the private placement debt space last fiscal, with 2,436 of them using the route compared with 220 from the public sector.