India Inc’s overseas borrowing has declined by 15 per cent year-on-year in the first nine months of the current fiscal as rising global interest rates and rupee depreciation made this borrowing source less attractive for domestic companies.
According to RBI data, Indian corporates raised $19.76 billion through external commercial borrowings (ECBs) between April-December 2022, compared with $23.82 billion in the year-ago period.
Costly affair
Indranil Pan, Chief Economist, YES Bank, said starting from the Covid period, when domestic interest rates were slashed and activity levels were low, corporates had preferred to repay ECBs to a very significant extent, mostly refinancing them from domestic sources. “After the Fed started increasing interest rates and the depreciation pressure was high for the rupee, ECBs were proving to be costly,” he said.
Fundraising via ECBs touched a historic monthly low of $361.6 million in April as the US Federal Reserve and other major central banks began raising interest rates to absorb the surplus liquidity in the economy and to tame the historically high interest rates. The Fed raised its benchmark interest rate by a quarter percentage point earlier this month, making it the eighth increase since March last year.
The ECB fundraising has been lukewarm in FY23 because corporates now have a strong balance sheet and little expansion plans hence the need for an external source of funding was low, said Pan.