Debt Finance: A Conceptual Study in the Indian Corporate Sector

Debt finance plays a vital role in corporate sector. It is needed by industries whether they are in promotional, operational or expansion stages. Corporate firms generally use debt funds extensively, as the owner's fund does not suffice to meet their needs. For growth, modernisation, expansion and diversification purposes, companies borrow funds from external sources. Debt has played an important role in the Indian corporate sector, more specifically in the private sector. From both financial and non-financial point of view, debt is advantageous to business concerns. Debt is financially better, because it is cheaper and non-financially it does not disturb controlling power and provide flexibility. Corporations generally raise debt funds in the forms of debentures, public deposits, finance from commercial banks and financial institutions and as trade credit and accruals. Debenture is an important source of debt finance. It has played a vital role in the Indian economy. Until recently, this was quite an unpopular source. However, in very recent years this is gaining popularity. Long-term sources of debt funds include debentures, public deposits and institutional finances, and short-term sources include short-term loans from commercial banks, accrued expenses, accounts receivables and miscellaneous sources.