Investments: Now, Indian corporates depend less on ECBs for growth
Virendra Pandit
New Delhi: Rising global interest rates, ease of getting bank credits at home, and bond issuance in the domestic market have reduced overseas fundraising by the corporate sector in India, the experts said.
In 2022-23, overseas fundraising fell to a five-year low owing to strong growth in bank credit, higher interest rates abroad, and positive sentiments about GDP growth.
According to the Reserve Bank of India, India Inc. raised a total of USD 25.98 billion through External Commercial Borrowings (ECBs) in 2022-23, which was 32 percent lower than in the preceding year. In recent years, India Inc’s lowest ECBs, to the tune of USD 17.39 billion, were recorded in 2016-17.
According to a media report, quoting Bank of Baroda’s Chief Economist Madan Sabnavis, the ECBs have dropped because rising interest rates worldwide have made overseas borrowing costlier than procuring domestic bank loans. Unlike the repo rate rising in the US to 450 basis points (bps), India’s repo rate has risen by only 250 bps.
The basic investment activity remained low-key in FY23, and demand for long-term funds through ECBs fell.
Besides, the volatility of the Indian rupee, which tended to depreciate by 7 to 8 percent, also heightened the risk of ECBs.
In recent years, the ECBs became an attractive source of fundraising for domestic borrowers because of surplus liquidity and low-interest rates overseas. The ECBs, therefore, went up from USD 26 billion in 2017-18 to a historic high of USD 52 billion in 2019-20. In 2020-21, it slumped to USD 35 billion because of the Covid-19 pandemic-led uncertainties, which forced corporates to postpone fundraising and expansion plans. It again picked up in FY22, at USD 38.48 billion, amid post-pandemic recovery.
According to Yes Bank’s Chief Economist Indranil Pan also, higher interest rates overseas made the ECBs less attractive in India.
Strong growth in bank credit to non-banking financial companies (NBFCs) also led to a drop in the ECB volume. The RBI data said bank credit to NBFCs grew by 30 percent year-on-year to Rs. 13.31 lakh crore as of March 2023, compared to Rs. 10.22 lakh crore as of March 2022. The NBFCs typically account for 35-40 percent of India Inc’s external fundraising.
In addition, India Inc., especially financial institutions, raised record funds through bond issuances in the domestic market. Nearly 800 corporates and institutions mobilized a record Rs. 8.3 lakh crore through private placement of corporate bonds in 2022-23 amid expensive overseas borrowings and higher interest rates at home.
As compared to Rs. 2.68 lakh crore in FY22, the highest mobilization in FY23 was in the all-India financial institutions/ banks category, at Rs. 4.17 lakh crore,
A recent report by CARE Edge revealed that while new investment proposals jumped from Rs. 22.4 lakh crore in FY22 to Rs. 29.4 lakh crore in FY23, the actual project completion dipped from Rs. 6.3 lakh crore in FY22 to Rs. 5.5 lakh crore in FY23.
