The biggest decline in corporate borrowing in the last two decades

- A favorable picture emerged with most companies focusing on debt payments

Rising corporate profits and sharp declines in capital spending have helped Indian industries reduce their debt burden in the last financial year. Combined borrowing by large listed companies (excluding banks, insurance and NBFCs) declined by 7.5 per cent year-on-year to Rs. 2.4 lakh crore to Rs. 20.5 lakh crore at the end of FY11. This is the first major decline in real corporate borrowing in nearly two decades, as loan repayments by companies have surpassed new borrowings.

The rise in corporate profits and cash flow has accelerated the process of reducing corporate debt, especially for commodity producers. The process of reducing corporate debt began in the second half of FY20 with a reduction in corporate taxes. Most companies have focused on improving their cash flow for debt repayment rather than spending fresh capital. Said corporate experts.

The cash reserves of Indian industry have also seen a sharp rise. The cash and cash equivalents of the companies were Rs. 10.5 lakh crore to 10 per cent increase. Last year, the cash reserves of all Indian industrial assets stood at 12.5 per cent, the highest since FY17. Combined capital expenditure by non-financial companies declined by 7.5 per cent year-on-year to Rs. 4.5 lakh crore as against Rs. 3.5 lakh crore a year ago. Capital expenditure growth in FY21 was the weakest since FY18.

The combined net profit of non-financial companies increased by 4.5 per cent to Rs. Their combined net sales fell by 2.3 per cent year-on-year to Rs 4.5 lakh crore in FY11 from Rs 4.5 lakh crore a year ago. In FY 2021, the combined income of companies was second only to FY15. In FY18, the revenue had reached a record high of Rs 4.5 lakh crore. The sharp rise in earnings drives the annual growth of combined net worth at 12.5 per cent, up from Rs 4.5 lakh crore a year ago to about Rs 21 lakh crore.

The decline in actual borrowing and the increase in earnings accelerated the sharp decline in the balance sheet leverage ratio. The total debt-to-equity ratio for non-financial companies has fallen to an 11-year low of 0.5 times. The net debt-to-equity ratio, on the other hand, has risen 0.2 times in FY21 to a 10-year low.