New Delhi, April 4: India Inc’s heavy dependence on debt financing for fresh investments continues.

A survey carried out by the Federation Of Indian Chambers of Commerce and Industry (Ficci) — which covered 248 companies in February and March — says corporate India suggests that certain incentive schemes should be devised to ensure the flow of some part of the long-term funds such as provident fund/ pension/ gratuity and postal savings to development financial institutions to help their financing needs.

Almost 59 per cent of respondents said term loans from banks remained the mainstay for financing, while another 46 per cent depended on financial institutions.

Companies do not see the capital market as a preferred source for raising financial resources. Moreover, the survey revealed that nearly one-third of the respondents depended on their internal accruals and external commercial borrowings.

With 73 per cent of the respondents believing that ‘development financial institutions have not been very active for the last five years’, respondents of the survey expressed doubt about their usefulness in raising low-cost long-term debt funds.

Consequently, the industry is widely divided in its opinion on the emergence of alternative structures for raising debt finance. Fifty two per cent feel that external commercial borrowings (ECBs), foreign currency non-convertible reserves (FCNR), loans and issuance of commercial paper have been useful in the last five years. The remaining 48 per cent felt that besides development financial institutions and banks, there are no other alternative sources they can tap for debt financing.

The findings state that it is the medium-sized firms (with a turnover of Rs 100-200 crore), which continue to remain heavily dependent on traditional sources like development financial institutions and banks. Only large firms with turnover in excess of Rs 500 crore have recourse to alternate sources like ECBs and FCNR loans.

Suggesting ways to make development financial institutions more effective, respondents feel that they should be given tax concessions with respect to their bond issues and also be exempt from tax on their profits.

Moreover, respondents were of the view that development financial institutions should be assisted in hiving off their non-performing assets to asset reconstruction companies to attain clean balancesheets and sustain long-term operations at reasonable costs.