Care should be taken while granting permission to corporates to raise overseas debts as rupee depreciation could create repayment woes, the > Economic Survey has said.
“Regulators will have to be careful about the tendency of some Indian corporations or entities without substantial foreign exchange earnings to leave foreign exchange borrowings un-hedged, so as to get ‘cheap’ foreign financing.
“Low un-hedged foreign interest rates can be deceptively enticing, leaving the borrower exposed to significantly higher repayments if the rupee depreciates unexpectedly,” it said.
Several companies have been approaching the Reserve Bank to raise overseas debt as interest rates are low abroad.
Corporates raised $1.7 billion through external commercial borrowings (ECBs) in the April-September period of the current fiscal, less than $8.4 billion in the corresponding period a year ago.
“India’s external debt has remained within manageable limits as indicated by the external debt-GDP ratio... But the trends in size, source, maturity, and hedging of external debt bear careful monitoring,” it said.
The total external debt amounted to $283.9 billion at end September 2012. Foreign exchange reserves at the end of January stood at $295.6 billion, up from $294.4 billion in March 2012.
Rupee movement
Referring to the movement of rupee, the Survey said that the rupee has been more volatile.
The rupee touched an all-time low of 57.22 against the US dollar on June 27, 2012, thus depreciating by 10.6 per cent from 51.16 per dollar in March.
In the subsequent months of July to September 2012, the rupee appreciated, touching 51.62 per US dollar on October 5, 2012, and thereafter traded in the range of 53.02-54.78 during October 2012 to January 2013.