Money mantra

Calcutta, July 8: Corporate India’s appetite for cash seems to be growing by the year.

Available data reveal that fund mobilisation by companies — both public and private — from equity markets and by the private placement of bonds rose significantly in 2007-08.

While funds mobilised through equity issues (public offerings) nearly trebled to Rs 84,771 crore in 2007-08 from Rs 28,697 crore in 2006-07, private debt market collections went up 23 per cent to Rs 1,15,266 crore from Rs 93,855 crore in 2006-07.

In the absence of a developed bond market in the country, domestic companies took the private placement route to issue bonds.

The corporate bond market saw hectic activity in the last financial year mainly because banks and financial institutions came in droves with large issues.

Of the Rs 1,15,266 crore that was raised from the bond market during the last financial year, banks and financial institutions mopped up Rs 90,164 crore, accounting for 78 per cent of the total collection.

In 2006-07, finance companies had mobilised Rs 71,193 crore.

To support a 30 per cent credit growth during the last financial year, banks and finance companies needed to raise a large chunk of money. This prompted them to tap the private bond market, besides the equity market.

Given the huge investment required in infrastructure, the corporate bond market is expected to do well in the future.

“Banks may have to contemplate issuing 10-year infrastructure bonds to raise long-term money to fund infrastructure lending,” said K. Ramakrishnan, chairman and managing director of Andhra Bank.

While banks are expected to contribute in a big way to support infrastructure lending, they have problems raising long-term resources.

The interest rate that banks offer on 10-year deposits (one option for raising long-term money) is not high enough to lure investors.

In fact, short-term deposits fetch higher returns than those that have a maturity period of over five years.

During the last financial year non-banking private sector companies mopped up Rs 21,689 crore, or 19 per cent of the total fund mobilised from the private bond market. This was an increase of 49 per cent over 2006-07.

Public sector undertakings, which collected Rs 6,178 crore through bonds in 2006-07, showed little interest this year as they together raised only Rs 752 crore.