The corporate sector had to borrow at a higher rate of 15.11 per cent in 1995-96 against 13.65 per cent in 1994-95. This has affected their performance with net profit growth dipping from a stratospheric 90 per cent in 1994-95 to 22 per cent in 1995-96. The situation worsened in first half of 1996-97 with negative growth rate in net profit. In the light of this, the sector is expecting cheap commercial borrowings in the current year.
A sample study of 1,408 companies by BS Research Bureau show that 64 per cent of the corporates borrowed at an average rate of 15.11 per cent in 1995-96 as against 49 per cent in 1994-95. The study acquires significance in view of the recent debate over the corporates' demand for a reduction in interest rat-es. The monetary policy for the slack season is due on April 15.
The sector-wise analysis also revealed the similar pattern. Of the 110 industries, the average interest rate for 76 industries (70 per cent) was over 15.11 per cent in 1995-96 as against 40 industry (36.4 per cent) in 1994-95.
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The borrowing of the sample companies during 1995-96 increased by 21.7 per cent to Rs 92,340 crore from Rs 75,964 crore in the previous year.
Interest payment on this was higher by 34.7 per cent to Rs 13,966 crore from Rs 10,368 crore. Thus, it is evident that during 1995-96, the corporate sector had to borrow at higher interest rates.
The rise in average rate of interest by 1.46 per cent in 1995-96 put additional burden of Rs 1,349 crore on 1,408 corporates. As a results, the performance of the corporate sector took a severe beating in 1995-96.
The BS 1000 giants in the corporate sector show the impact of high interest burden. High interest cost reduced the growth rate in net profit of BS 1000 to 22 per cent as against record growth of over 90 per cent witnessed by BS 1000 in 1994-95. This fact is again evident from the half yearly result for 1996-97. Due to a 28 per cent rise in interest burden, net earnings of corporate sector declined by 10 per cent in the first half of 1996-97.
A sharp upswing in the rate of interest does mean that raising money was dearer to all corporates.
From the data it is seen that the average rate of borrowing for 509 companies was below the average rate of 15.11 per cent. It is possible that these companies managed to get funds at lower rate of interest. Similarly for 34 industrial sector the average rate of interest was below the average.
From the data it is revealed that average rate of interest for top 100 borrowers remained unchanged at 14.32 per cent. Which means the top 100 borrowers have managed to raise funds below the average rate of 15.11 per cent. In the next bracket, up to 700, the real rate of interest though remained unchanged, it averaged between 15.5 per cent and 16.2 per cent. Below 700, real rate of interest averaged over 16 per cent. Which means for the small companies getting a cheap loan was difficult.
A sample of 1,408 companies was selected for this study. Because of difficulties in calculating the real rate of interest from the annual reports data, average rate of interest was calculated on the basis of gross interest (including interest capitalised) paid by the company divided by average borrowing for two years. It is seen from the annual reports data, because of cheap loans, average real interest rate for PSU's and big companies in the private corporate sector the come below 10 per cent.