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With domestic lending rates rising sharply over the last one year, India Inc. appears to be making the most of the low interest rates in overseas markets.
While interest rates are ruling low in developed economies, lending rates in India have jumped by almost three percentage points, prompting Indian companies to increasingly tap overseas markets.
In the first four months (April-July 2011) of the current fiscal, Indian companies raised $12.22 billion through external commercial borrowings/foreign currency convertible bonds, against $6.46 billion in the corresponding period last year.
During the same period, due to spike in lending rates and slowdown in economic activity, credit off-take from banks was sharply lower at Rs 57,114 crore (Rs 1,32,274 crore in the April-June 2010 period).
As per the latest RBI data, Indian companies mopped up $4.169 billion through ECBs/ FCCBs in July 2011, against $3.335 billion in the preceding month.
Non-banking sources
During the first four months of 2011-12, non-banking sources accounted for nearly 70 per cent of the funding for the commercial sector, according to the RBI's latest annual report. This was mainly on account of revival of FDI inflow.
Indian corporates can raise money about 4.5 percentage points cheaper from overseas markets as compared to the domestic markets. This interest rate differential is advantageous for them, according to Mr N. S. Venkatesh, Chief General Manager, IDBI Bank.
With the Reserve Bank of India hiking its benchmark interest rates 11 times since March 2010, banks have upped their lending rates by about 2.75 percentage points.
As the US Fed is expected to hold interest rates at a low for two years, overseas investors will keep pouring money into India to chase its economic growth story, said Mr Venkatesh.
Reliance Industries Ltd accounted for nearly a quarter of the total resources raised by India Inc in July 2011. It raised $1.091 billion for five years to refinance old loans. NTPC and IOC raised $500 million each for a period of 10 years and one month for importing capital goods.
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