Indian Companies May Need a Timeless Strategy to Fix a New Cash Problem

As 2025-26 draws to a close, Nifty-500 companies, ex-BFSI, are sitting on roughly ₹16 trillion, or $175 billion, in surplus cash. That is close to the government’s annual borrowing programme and broadly in line with GST collections over nine months. What stands out is not just the scale, but the pace. Cash has accumulated faster than revenue.

Boards are left with a familiar problem and no clean solution. Holding cash drags return ratios. Deploying it into marginal projects risks eroding value. Dividends reset expectations that are hard to reverse. Buybacks alter ownership and reward those who exit. Preference shares come with tax friction. The standard toolkit works, but imprecisely.

Companies are still returning capital. In 2024-25, these Nifty-500 firms paid out about ₹4.4 trillion in dividends and ₹0.62 trillion via buybacks. Even so, the discomfort is visible. These instruments either commit too much or leave too much optionality with management.

Elsewhere, firms have taken a different route. Debt is not always raised to fund growth; it is often used to fund payouts. Apple, Microsoft and IBM borrow while holding large cash reserves. US corporations spent nearly $1.6 trillion on shareholder payouts in 2024, much of it debt-financed. Variants of this approach exist across Europe and Japan.

India has seen a more deliberate version before.

HUL’s Construct
In 2001, Hindustan Lever faced excess reserves and moderate growth. Dividends would have reset expectations. Bonus shares would have diluted return ratios. Buybacks risked uneven participation. The company chose a different route.

It capitalised ₹14.55 billion of reserves to issue fully paid bonus non-convertible debentures of ₹6 per share. The instrument carried a 9% coupon, set above government bond yields, and was redeemable within a defined timeframe. It was listed, tradable, and accessible to retail investors, with a repurchase window for small holders.

The structure required shareholder approval and court sanction. It applied uniformly across promoter, institutional and retail shareholders.

On the surface, it resembled a hybrid of dividend and debt. In substance, it changed the nature of surplus.

By converting reserves into a liability owed to shareholders, HUL imposed a discipline that dividends and buybacks do not. Interest had to be paid. Redemption had to be met. Cash that might have remained idle acquired a contractual destination. The balance sheet, not management discretion, enforced the outcome.

The market response was muted. The stock did not re-rate. Value moved through interest income and redemption rather than price appreciation. That quiet outcome was the point. The mechanism worked without relying on sentiment.

For the company, surplus was deployed without exhausting flexibility. For the promoter, discretionary dividend flows became predictable interest income without altering control. Minority shareholders received proportional treatment without being forced into exit decisions.

A few companies tried variations later. Blue Dart adjusted tenors. Dr. Reddy’s used an SPV to ring-fence flows. NTPC structured longer-tenor instruments linked to government securities. The core idea remained the same: convert surplus into a time-bound obligation.

The relevance of that approach is easier to see today. Sectors such as IT and FMCG, with high cash balances and limited reinvestment needs, are structurally suited to such instruments. Capital-intensive sectors are not.

The constraint is not financial. It is behavioural.

Issuing a liability to one’s own shareholders reduces managerial discretion. It replaces optionality with obligation. That is precisely why it works—and why it is rare.

Indian corporate balance sheets are stronger than they have been in years. Growth, however, is uneven. The temptation to hold cash is high. So is the pressure to return it.

The familiar tools will continue to dominate. Dividends and buybacks are easy to execute and well understood. But they are blunt. They either commit too much or leave too much unsaid.

There is a middle path. One that converts surplus into a claim without diluting equity or distorting ownership. One that imposes discipline without sacrificing control.

Hindustan Lever used it once, when few were looking for innovation in capital allocation. The conditions that made it relevant then have returned, just at a larger scale.

A surplus capital of ₹16 trillion tends to force the question. The answer depends on whether boards are willing to replace discretion with discipline.