NEW DELHI: India Inc.'s appetite for external commercial borrowings (ECB) or debt sourced from abroad has reduced sharply following the Covid-19 pandemic as firms tightened their belts and sold assets to reduce debt levels. However, with the economy opening up, analysts expect the offtake to quicken in the coming months. Corporate borrowing from overseas, despite low rates of interest, came down to just
a tad over $ 11 billion in the first half of the current financial year compared to $ 25.17 billion in same period last year.
In the first quarter of the current fiscal, the ECB offtake was a mere $ 3.5 billion, compared to $ 11.9 billion in the same period last year.The largest single chunk of the borrowing was done by just one group — Reliance Industries, which borrowed $1.4 billion in September alone. Other big names which accessed ECBs, included REC, Adani group frms, Mahindra & Mahindra Financial Services, HPCL, Thyssenkrup Elevators, showed RBI data.
"As the economy was shut in the first quarter and then was finding its feet in the second, plans to expand which require borrowing were shelved. Given forex volatility, most corporates, other than the very big ones or Indian arms of MNCs also fought shy of accessing low cost ECBs to replace domestic borrowing," explained Sanjay Bhattacharyya, former managing director of SBI.
However, firms specialising in arranging foreign loans say the number of queries for ECBs are increasing and are likely to mature into an uptick in ECB borrowings in the months ahead as the economy normalises. "Many corporates are looking for alternate sources of funds. Pharma, construction, solar, healthcare are among key sectors which have been talking to us," said Vishal Yadav, CEO of FDI India, a financial platform.
Though borrowing costs abroad are low compared to India, a foreign exchange risk is added to the cost. From the Indian company, besides the forex risk, Indian rules mandate that they have to compulsorily hedge to the extent of 60 per cent of the loan if the maturity period of the loan is less than 5 years. While natural hedges maturing within the same accounting year are permitted, the mandatory hedging requirement adds an additional level of burden on Indian companies.