India Inc’s External Commercial Borrowings (ECBs) jumped over 19 per cent in the first nine months of the current fiscal. The growth comes in the backdrop of domestic companies shoring up low-cost overseas funds amid pick up in the economic activity and impending interest rate hike by the US Fed Reserve.

According to the Reserve Bank of India (RBI) data, the overseas borrowings of Indian companies stood at $23.28 billion in the first three quarters of the current fiscal as against $19.53 billion during April-December, 2020.

Interestingly, overseas borrowing in the first nine months, for certain end-use, has already exceeded the full year’s level witnessed in FY21.

For instance, ECBs for the purpose of ‘on-lending/sub-lending’ in the first nine months of FY22 stood at $6.72 billion. This was higher than $6.67 billion raised by the non-banking lenders in whole of FY21. Similarly, ECBs for refinancing of rupee loans ($3.70 billion), modernisation ($1.67 billion), capital goods Import ($1.54 billion) and rupee expenditure ($976 million) have all exceeded FY20’s full year fundraising levels.

“With fund raising of USD 23.3 billion in 9M fiscal 2022, ECB issuances by Indian companies have grown by 19% y-o-y. With broad-based recovery in the economy and support of both retail and wholesale verticals, total credit growth (Banks and NBFCs) is likely to improve by 9-11% in fiscal 2023,” said Hetal Gandhi, Director, CRISIL Research.

“Accordingly, almost a quarter of ECB issuances are for on-lending/sub-lending purposes driven by financial institutions and NBFCs. Further, almost 30% of ECB issuances in the last 3 quarters is used by India Inc to refinance their existing debt amid relatively lower cost of borrowing in the overseas market and rising interest rate scenario in the domestic market,” she added.

Rush to tap low-cost funds

The rush to tap low-cost overseas funding continued even in January with domestic companies raising over $6 billion through ECBs in the first fortnight. However, economists point out that the current uptick in overseas borrowing is purely on account of low interest rate advantage, which could taper down once the US raise rates. “Overseas borrowings are going up primarily because of the interest rate differential. Interest rates are still low outside compared to India. That’s the only reason we are seeing higher levels of borrowing through ECBs. But, the quantum of borrowing will definitely reduce, the moment the US Fed Reserve increases the interest rate,” said Madan Sabnavis, Chief Economist at Bank of Baroda.

The US Federal Reserve recently indicated that rate hikes are imminent to tame high inflation, which has soared to 40-year high in December. The Fed is expected to start increasing the interest rates from March, making overseas borrowing relatively costlier.