New Delhi, May 25: India Inc has been finding it difficult to tie up funds because of the high cost of borrowings and the bankers’ reluctance to lend, says a study conducted by the Federation of Indian Chambers of Commerce and Industry (Ficci).
A sample survey conducted by Ficci to analyse the cost structure of Indian companies and the extent to which their borrowing demands are met says that 62 per cent of their respondents feel that industry financing needs are not met appropriately.
In addition, 27 per cent of the respondents say the “depressed state of capital market and dearth of good long-term instruments are the (main) reasons for drying up of the flow of funds to industry”.
As a result, companies over the years have started depending on internal surpluses as a source of long-term finance. Statistics reveal that a whopping 41 per cent of companies financed 80-100 per cent of their funding requirements through internal surplus last year.
In comparison just 6 per cent of companies financed 0-20 per cent of their long-term funding requirements through the primary market route in 1999-2000.
Project financing has also experienced a downward trend in the last few years. Only 11 per cent of the respondents surveyed adopted this route in 2002-03 as opposed to 34 per cent of the companies who raised 60-80 per cent of long-term funds through project financing.
The survey states that financing in the form of foreign currency loans has been the favoured route for companies. Almost 47 per cent of the respondents accessed the foreign debt market in one form or the other after economic liberalisation.
Approximately 46 per cent of the respondents found foreign loans to be more economical than domestic credit. Of these, 8 per cent respondents approached the foreign debt route for reasons including better pricing and management of risk.
Forty-nine per cent of the respondents said their average cost of funding was more than 11 per cent, whereas 24 per cent of the companies surveyed faced ad funding cost between 5-8 per cent.
The report suggests that 75 per cent of the companies, who have an average cost of funding of more than 11 per cent, belong to old economy sectors like steel, cement, paper, agro-products, power and textile.