The Hindu Business Line : ‘ECB curbs may not impact much funds inflow’

Mumbai, Aug. 8 The recent restriction on overseas borrowings by corporates may curb inflows of foreign funds into the country only to a small extent, say bankers. They were, however, divided on the impact of this move on the value of the rupee.

“The Reserve Bank of India is trying to negate the major inflow of foreign exchange into the country and modulate the flow of dollars. It will help to some extent, but the size of inflows is big as of now,” said the chief of treasury of a public sector bank. He noted that ECBs have been curbed, but the larger inflows of foreign funds were by way of FDI and through FIIs into the stock markets.

“Of the three kinds of inflows, ECB is the easiest to control,” he said.

Mr P. Mukherjee, Treasury Head, AXIS Bank, said: "This will lead to a higher cost of borrowing for corporates and also to delays because now RBI approval is required for all funds raised through ECBs."

He pointed out that the ECB curbs served as another tool to fight inflation.

From the point of view of their own business, banks are seeing this as a positive move, as it would fuel the demand for rupee loans. “The credit market in India, which is already doing quite well, will get a further boost," said a senior official from a public sector bank.

Among corporates, the smaller and medium exporters would be affected more by the ECB curbs than the bigger exporters who can hedge their risks, he added.

Some dealers feel this move is unlikely to stem the appreciation of the rupee, due to other sources of inflows such as money flowing into the stock market.

"There is enough scope for the rupee to still gain, as other inflows are strong," Mr Mukherjee said.

However, some market participants held the view that the rupee could break the 40 levels, and depreciate to touch 41.

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