After making a record borrowing in the first quarter, India Inc seems to be going slow on overseas fundraising. According to latest RBI data, Indian corporates collectively raised $2.6 billion in July, followed by $2.8 billion in August, in external commercial borrowings (ECBs).

The ECB fundraise in the last two months is a significant decline from the $7.5 billion and $7.9 billion that Indian companies raised in May and June. In Q1 FY24, overseas fundraising touched a historic quarterly high of $21 billion. 

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Experts attribute the decline in ECBs to a combination of factors, including rising global interest rates, which have made ECBs more expensive, compared to domestic loans, and depreciation of Indian rupee.

Muted private capex

Another major reason for the decline in ECBs is the slowdown in private capital expenditure. Companies typically raise ECBs to meet long-term projects such as business expansion and modernisation expenses. 

In a recent report, Bank of Baroda cited CMIE data and said that new project announcements in Q2 FY24 have fallen sharply amounting to ₹1.2-lakh crore, the lowest level since June 2004. 

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Rating agency CRISIL also said while government spending has been rising, the private sector has not driven a meaningful pick-up. According to CRISIL, the conditions now seem ripe for the much-awaited private capex cycle to restart for domestic and infrastructure-linked sectors, given the increase in capacity utilisation, de-leveraged balance sheets, and steadfast demand. 

“However, with only brownfield expansions seen in some pockets, a significant uptick in private sector capex may be a few quarters away as India Inc,” it added. 

The slowdown in the privat capex was also evident from the domestic bank credit growth. According to RBI data, credit growth to industry between March and August was 2.1 per cent, compared to overall credit growth of 9 percent during the same period. 

ECB utilisation

Between April and August, Indian corporates collectively raised $26 billion in ECBs, of which, refinancing of earlier ECBs accounted for a 29.7 per cent share, followed by on-lending and sub-lending (16.4 per cent). Import of capital goods and infrastructure development account for mere 5.5 per cent and 0.1 per cent of the total borrowings, respectively, during this period.