India Inc's borrowings slowed, but overall financial flows to companies surged: RBI governor

Mint

a day ago

Although credit growth slowed in 2024-25, the broader flow of financial resources to the commercial sector has significantly improved, Reserve Bank of India governor Sanjay Malhotra said, emphasising that the slowdown in corporate borrowings should not be viewed in isolation.
Overall flow of financial resources to the commercial sector increased from ₹ 33.9 trillion in 2023-24 to ₹ 34.8 trillion in 2024-25, according to the governor. 'This trend continues during the current financial year as well,' said Malhotra.
RBI defines the flow of financial resources to the commercial sector as the aggregate of bank loans, loans from non-banks, and investment by Life Insurance Corp. of India in corporate debt, apart from funds raised overseas.
Credit growth tempered to 12.1% in FY25 from 16.3% in the financial year prior. However, according to Malhotra, loans grew faster in FY25 than the average pace over the past decade. Average credit growth was 10.3% in the 10-year period preceding 2024-25, he said.
'Moreover, while the flow of non-food bank credit during the financial year 2024-25 reduced by about ₹ 3.4 trillion from ₹ 21.4 trillion to almost ₹ 18 trillion, the flow from non-bank sources more than made up for this decrease,' said Malhotra.
Non-food credit is bank credit adjusted for loans given to the Food Corporation of India.
RBI's monetary policy committee on Wednesday kept the repo rate unchanged at 5.5% and maintained its 'neutral' policy stance on expectations of healthy economic growth and inflation remaining under control this financial year. Prior to this, RBI had pared its key policy rate by 100 basis points since February, when it cut the repo rate for the first time in about 5 years.
Malhotra added that although the rate cuts had been quickly transmitted to money markets, large companies are increasingly relying on market-based instruments such as commercial paper and corporate bonds to source funds, reducing their reliance on bank credit.
'Also, as the profitability of large corporates has increased, their internal resources have become an important source for business expansion,' he said.
A Mint analysis of cash holdings of 285 BSE-listed firms, excluding banking, financial services and insurance companies, showed a 12% year-on-year rise to ₹ 5.09 trillion in FY25.
However, new project announcements—a proxy for capital expenditure—fell 5% in FY25, following a 3% contraction in FY24, Mintreported on 6 July, citing data from the Centre for Monitoring Indian Economy (CMIE).
Companies raised ₹ 2.93 trillion through private placements of corporate debt in the first three months of FY26, as against ₹ 1.56 trillion in the same period last year, per data from the Securities and Exchange Board of India.
Companies also raised ₹ 1,435.8 crore from public issue of corporate debt between 1 April and 16 June this year, as against ₹ 2,454 crore raised in the first three months of FY25, Sebi data showed.
That said, the government is closely tracking the slowdown in credit growth.
Finance minister Nirmala Sitharaman has asked public sector banks to take advantage of RBI's rate cuts this year to lend more to productive sectors, news agency PTI reported on 27 June.
Research shows that a rate cut does not always lead to higher credit growth. A white paper released by consulting firm BCG in July found that there were phases, such as the one between 2014 and 2016, where even with a time lag of 12-24 months, credit did not pick up despite falling interest rates.
Similarly, between 2018 and 2020, despite a stable interest rate followed by a decline, credit growth did not pick up, according to the paper authored by Deep Narayan Mukherjee, Gopal Sharma, Kanishka Singh, and Pooja Kaphalia.
In fact, the period between 2022 and 2023 witnessed credit growth despite rising interest rates. Per the BCG paper, 2016-2018 was the only phase in its observation period when credit grew in a falling interest rate scenario.
'As such, low interest rate is an enabler for credit growth. Whether credit growth actually happens depends on how the borrowers perceive their future risks and opportunities and as well as the lender's comfort level,' it said.