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External commercial borrowing (ECB) touched a historic high in 2018-19. Indian entities, primarily led by large corporates and oil marketing companies (OMCs), borrowed as much as $41 billion during the financial year, registering a 58 per cent increase from the previous year’s tally of $26 billion. The earlier high was $31 billion, achieved in 2014-15.
“Rising interest rates, tight liquidity conditions in the domestic market, cautious lending by risk-wary domestic lenders and diversification of borrowing sources are some of the major reasons for the spike in the ECB,” said Gayathri Parthasarathy, Partner and Head, Financial Services, KPMG.
Top borrowers
The Reserve Bank of India’s recent forex swaps to boost domestic liquidity also helped, as it resulted in lower hedging costs.
Total ECB borrowing in March 2019 touched a historic single-month high of $12.17 billion with ArcelorMittal India ($5.03 billion), Reliance Industries ($1.5 billion) and Reliance Jio ($750 million) being the top borrowers.
A slew of rationalisation measures taken by the RBI last year has also helped.
In April 2018, the RBI rationalised borrowing cost (through ECBs) and expanded the list of eligible borrowers to include housing finance companies and port trusts.
The central bank also issued a ‘new ECB framework’ in January 2019 by removing the sector-wise borrowing limits to enable all eligible borrowers to raise ECB loans up to $750 million. Oil marketing companies were also permitted to raise $10 billion for working capital.
Financial sector leads
Consequently, the financial services sector topped the borrowing chart.
“Due to liquidity pressure, bond yields have gone up, and in a rising yield scenario, investors will be averse to investing in long-term domestic debt instruments,” said Anil Gupta, Vice-President and sector head, financial ratings, ICRA.
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