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Key Points

Indian companies have significantly slowed debt growth over the past five years, opting instead for internal funding. The Bank of Baroda report shows corporate debt rose just 2.9% annually compared to 8.7% in the previous period. Key sectors like power and telecom still drove borrowing, but overall firms appear more cautious about leverage. This shift suggests businesses are prioritizing financial stability in an evolving economic landscape.

Key Points: Indian Companies Slow Debt Growth as Internal Accruals Rise

  • Corporate debt grew at 2.9% CAGR in FY21-FY25 vs 8.7% earlier
  • Power and telecom sectors led debt accumulation
  • Fixed asset investments rose despite deleveraging
  • Debt-to-GVA elasticity weakened post-FY20
2 min read

Indian companies debt growth slowed in last 5 yrs as companies using internal accruals for growth: BoB Report

Bank of Baroda report reveals Indian firms cut debt reliance, using internal funds for growth with a 2.9% CAGR in FY21-FY25.

"Growth in debt in the five years ending FY25 was slower than that in the preceding five-year period – Bank of Baroda Report"

New Delhi, June 26

Debt growth of Indian companies have slowed down over the past five years, suggesting that they are using internal accruals for growth, noted a research report by Bank of Baroda.

The report showed that the debt of non-financial corporates rose from Rs 20.7 lakh crore in FY21 to Rs 22.6 lakh crore in FY25. This reflects a compound annual growth rate (CAGR) of 2.9 per cent, which is significantly lower than the 8.7 per cent CAGR recorded during the previous five-year period between FY15 and FY20.

The report stated, "Growth in debt in the five years ending FY25 was slower than that in the preceding five-year period".

The report also noted that the trend in debt growth has varied across the five-year period. Debt grew by 5.9 per cent in FY21 and 5.7 per cent in FY23.

However, growth slowed to 1.4 per cent in FY22, and there was even a decline of 0.7 per cent in FY24. The fall in FY24 is linked to deleveraging, where companies repaid loans and reduced their debt burden.

This trend indicates that companies have likely turned to internal resources for financing rather than depending heavily on external borrowings.

Despite slower debt growth, investment in fixed assets was higher during this period. This suggests that part of the funding for asset creation came from internal accruals.

The report also showed a sectoral breakdown, highlighting that power, crude oil, telecom, and infrastructure-related sectors continue to hold a major share in the overall corporate debt.

Out of 25 sectors analysed, 13 recorded a higher CAGR than the overall average of 2.9 per cent during the FY20-FY25 period.

Among key sectors, telecom, power, and infrastructure-related industries witnessed notable momentum in debt levels. This aligns with improved order inflows and increased government capital spending aimed at reviving the investment cycle.

The report also analysed the elasticity of debt to Gross Value Added (GVA), excluding agriculture, financial services, real estate, professional services, and public administration.

This relationship appears to have weakened in the post-FY20 phase, reinforcing the trend that companies may be relying more on their own funds for expansion.

The report outlined that the Indian companies appear to be more cautious in leveraging debt, opting instead to use internal accruals for funding, especially in a changing economic environment.

- ANI

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Reader Comments

R
Rahul K.
This is great news for our economy! Companies becoming self-reliant means more stability. The Make in India push seems to be working. Hope this trend continues and we see more Indian companies growing without excessive debt burdens. 🇮🇳
P
Priya M.
Interesting analysis but I'm concerned about the telecom sector's high debt levels. We've seen what happened with Vodafone Idea. Are we sure this isn't just companies avoiding loans because banks have become stricter after the NPA crisis?
A
Amit S.
Good to see infrastructure and power sectors leading the growth. These are crucial for our development. But government should ensure this debt is used productively - no more Jaypee Infratech like cases please!
S
Sunita R.
As a small business owner, I can relate. Banks have made it so difficult to get loans that we're forced to grow slowly using our own profits. While it's safer, it limits how fast we can expand. Government should ease MSME lending norms.
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Vikram J.
The report missed discussing how this affects employment. If companies grow slower using internal funds, does it mean fewer new jobs being created? That's an important angle for our young population needing employment.
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Neha P.
Positive trend overall 👍 But I wonder if this is sustainable in long term. When global competition increases, will our companies have enough war chest to compete without taking calculated debts? Balance is important.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

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