Corporate borrowers run to the markets as Indian banks wilt

NEW DELHI: India’s record-low corporate spending may be poised for a turnaround as road builders and power generators seek alternative ways to raise money.

Stymied by a lending paralysis among its domestic banks, infrastructure companies are increasingly turning to investment trusts and the corporate-debt market for funding.

India is also planning to set up new infrastructure banks to encourage spending and circumvent the world’s worst bad-loan ratio as banks grapple with more than US$180bil in stressed assets.

“I see the beginning of a fairly historic shift in financing in which private sector companies are moving away from banks to capital market instruments,” said Vinayak Chatterjee, chairman of infrastructure-services firm Feedback Infra Pvt Ltd. “I see a deeper pattern.”

Already, funds raised through corporate bonds sales surged 40% to 3.31 trillion rupees (US$51.5bil) in the year through March from the prior 12 months, according to a May 17 note from Prime Database which tracks India’s primary capital markets.

Revival in corporate investments is crucial to fill a US$1.5-trillion investment gap in the next decade as India seeks to connect its cities and electrify villages.

Companies will be able to bid for projects as the government rolls out its plan to spend a record 3.96 trillion rupees on building infrastructure.

Since September, India has reformed its financial markets to make it easier to access. The country relaxed rules for investing in infrastructure and real estate trusts and has allowed foreign investors to trade directly in the corporate bond market.

This month, it amended a law to give the central bank power to spur lenders and borrowers to take write downs.

The overhaul is part of a policy drive by Prime Minister Narendra Modi to boost investment, growth and jobs ahead of elections in 2019. The latest reform, a goods and services tax designed to unify the country in to a common market and make doing business easier, is set to roll out on July 1.

India has traditionally used public-private partnerships to fund infrastructure projects, where debt came from public sector banks and equity from private investments.