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Uptick in borrowing attributed to availability of cheaper funds abroad and stable rupee

After a sharp decline in pandemic-hit FY21, overseas fundraising of Indian corporates have regained momentum. As per the latest RBI data, external commercial borrowings (ECBs) of India Inc in FY22 stood at $38.5 billion, witnessing a 10 per cent growth over FY21.

External borrowings of India Inc touched a historic high of $52 billion in FY20 amid surplus liquidity and low interest rates in the global markets. However, the quantum of overseas borrowing declined by 32 per cent to $35 billion in FY21 as the pandemic-led uncertainties forced corporates to postpone their fundraising and expansion plans, besides deleveraging their balance sheets.

However, pick-up in economic activity post unlocking and the continued availability of cheaper funds abroad induced corporates to tap overseas funding in the previous fiscal. 

“ECB issuances by Indian companies grew by 10 per cent y-o-y in FY22 to $38.5 billion. While in absolute terms, it is still lower than the peak observed in FY20 at $53 billion, sequential increase clearly shows improvement in corporate performance and credit growth,” said Aniket Dani, Director, CRISIL Research.

“Given that most market participants started expecting interest rate increase across developed markets by H2 of FY22, Indian corporates realigned their ECB portfolio accordingly. This is evident from the share of ECB for refinancing purpose which increased sharply from 17 per cent in FY21 to 31 per cent in FY22,” Dani added. 

Major borrowers

Reliance Industries was the highest borrower of ECBs in FY22 at $4.9 billion followed by Indian Oil Corporation ($2.55 billion), REC Ltd ($2.52 billion), JSW Steel ($1.28 billion) and Mumbai International Airport ($1.25 billion). 

On a sectoral basis, financial services continued to be the top borrower as with all previous years with $8.55 billion worth of ECBs. On purpose-wise too, on-lending/ sub-lending (by financial institutions) topped the ECB chart at $8.47 billion, followed by refinancing of earlier ECBs ($7.01 billion), working capital needs ($5.22 billion), refinancing rupee loans ($5.02 billion) and new projects ($2.53 billion).

ECBs to become less attractive

However, the interest rates hike by major central banks and weakening rupee against US dollar may push the hedging costs for overseas borrowing and make them less attractive, going forward. 

Madan Sabnavis, Chief Economist at Bank of Baroda, said ECBs remained attractive mainly due to lower costs and stable rupee which kept the hedging costs lower. “With interest rates going up, ECBs will no longer be cheap. US 10-year interest is almost 3 per cent and a weak rupee will add to the cost. Forward premium at 4-4.25 per cent. Hence, ECBs will not be attractive.”

Published on May 14, 2022