Resources raised by India Inc via external commercial borrowings (ECBs) dwindled sharply to $361.6 million in April 2022 with interest rates in advanced economies going up.

Indian corporates had raised $2.368 billion in April 2021 and $5.029 billion in March 2022 via the ECB route due to relatively lower global interest rates.

Commercial loans

ECBs are commercial loans raised by eligible resident entities from recognised non-resident entities. These loans are required to conform to parameters such as minimum maturity, permitted and non-permitted end-uses, maximum all-in-cost ceiling, etc.

The sharp decline in resources raised via the ECB route comes even as banks registered a strong credit growth of 11.3 per cent y-o-y in April 2022 as compared to 4.7 per cent a year ago.

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Aditi Gupta Economist, Bank of Baroda, observed that India has seen a steady increase in resources mobilised through this route in the last few years.

Improvement in economic activity and low global rates have contributed to the attractiveness for this source of funding for India Inc, she said.

“However, with global central banks on a monetary policy tightening cycle, interest rates are likely to go up.

“This may lead to a moderation in ECB inflows. Furthermore, the steady depreciation in INR (Indian rupee) recently will also be a headwind for ECB inflows going forward,” opined Gupta. 

Big-ticket resources

The companies that mopped up big-ticket resources from overseas markets in April 2022 include Lancer Container Lines ($50 million via the foreign currency convertible bond route for overseas acquisition), Sakura Energy Transport Pvt Ltd ($47 million for import of capital goods), and Sobek Auto India Pvt Ltd ($36 million for working capital).

The ECBs to India (net) jumped to $7.7 billion (provisional) in FY2022 from $0.2 billion in FY21, per RBI’s latest annual report.

Net inflows under external commercial borrowings remained at $2.5 billion during H2 (October-February), around the same level as a year ago, the funds being used for on-lending/ sub-lending, refinancing of rupee loans, repayment of the earlier borrowings, working capital, and new projects.

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