Skip to main content

New RBI norms to make FY17 costlier for large firms

By
Large borrowers in corporate India should be ready for higher interest rates on their incremental borrowing from April 2017, as the Reserve Bank of India (RBI) plans to raise the provisioning requirement in this regard.
In 2015-16, India’s top non-financial companies paid an average interest of 7.6 per cent on their borrowing. This could potentially rise to 8.7 per cent, based on average current yields on listed rupee-denominated corporate bonds (see table).
RBI has proposed that banks set aside higher provision for new lending to companies defined as ‘large’. Covered are those with fund-based sanctions from the total banking system of Rs 25,000 crore at any time during 2017-18; Rs 15,000 crore at any time during 2018-19 and Rs 10,000 crore at any time from April 1, 2019 on.
At the end of the past financial year, 21 non-financial companies in the BSE 500 had bank borrowing of Rs 10,000 crore or more, of which eight owed more than Rs 25,000 crore to banks. These eight would have to look beyond banks to raise new loans in 2017-18.
The analysis is based on the debt and total interest cost of 377 companies, excluding financial ones, that are part of the BSE 500 index. Debt is the average of year-end figures for FY15 and FY16, while interest is the actual amount for FY16.
As yields on corporate bonds are typically higher than companies’ FY16 interest cost, the proposed RBI norms are likely to push corporate India’s finance cost higher.
“While this is laudable in terms of development of the corporate bond market, we see it creating problems for some corporates in raising funds, especially for infrastructure projects,” wrote Soumya Kanti Ghosh, chief economic advisor, State Bank of India. He expects annual inflow of  Rs 40,300 crore in long-term debt markets and Rs 19,400 crore in commercial paper for FY18.
Some of the large companies likely to be affected by the change in regulations are Jaiprakash Associates, Vedanta, Hindalco, Tata Steel, Videocon Industries, Larsen & Toubro, Vedanta and GMR Infra.
Business Standard New Delhi,01th September 2016

Comments

Post a Comment

Popular posts from this blog

GST collection for November rises by 8.5% to Rs.1.82 trillion

By
  New Delhi: Driven by festive demand, the Goods and Services Tax (GST) collections for the Union and state governments climbed to Rs.1.82 trillion in November, marking an 8.5% year-on-year growth, according to official data released on Sunday. Sequentially, however, the latest collection figures are lower than the Rs.1.87 trillion reported in October, which was the second highest reported so far since the new indirect tax regime was introduced in 2017. The highest-ever GST collection of Rs.2.1 trillion was reported in April. The consumption tax figures highlight the positive impact of the recent festive season on goods purchases, providing a much-needed boost the industry had been anticipating. The uptick in GST collections driven by festive demand had been anticipated by policymakers, who remain optimistic about sustained growth in rural consumption and an improvement in urban demand. The Ministry of Finance, in its latest monthly economic review released last week, stated that I...
Post a Comment
Read more

Budget: Startup sector gets new Fund of Funds, FM to allocate Rs 10K cr

By
  The Indian startup sector received a boost with Finance Minister Nirmala Sitharaman announcing the establishment of a new fund of funds (FoF) in the Budget 2025. The minister unveiled a fresh FoF with an expanded scope, allocating Rs 10,000 crore. The initial fund of funds announced by the government with an investment of Rs 10,000 crore successfully catalysed commitments worth Rs 91,000 crore, the minister said.   “The renewal of the Rs 10,000 crore commitment to the Fund of Funds for alternative investment funds (AIFs) is a significant step forward for the Indian startup and investment ecosystem. The initial Rs 10,000 crore commitment catalysed Rs 91,000 crore in investments, and I fully expect this fresh infusion to attract an additional Rs 1 lakh to Rs 1.5 lakh crore in capital,” said Anirudh Damani, managing partner, Artha Venture Funds.   Damani further added that this initiative will provide much-needed growth capital to early-stage startups, further strengthenin...
Post a Comment
Read more