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India Inc may have to reduce overseas borrowing

In the coming days, Indian corporate houses may borrow less through the ECB route despite RBI easing the overseas borrowing norms, as western banks are less willing to take positions in the emerging markets.

business Updated: Oct 16, 2011 11:24 IST

In the coming days, Indian corporate houses may borrow less through the ECB route despite RBI easing the overseas borrowing norms, as western banks are less willing to take positions in the emerging markets.


The falling rupee is also adding to the concerns of the corporates, as they fear higher repayment burden. Already, external commercial borrowings -- ECBs -- are in tight supply, with swap getting pegged at over Libor plus 4%.

RBI data shows that overseas borrowing through ECB dipped to USD 3.71 billion in August, from USD 4.16 billion in the previous month.

This trend is in a sharp contrast to the first quarter, when domestic firms borrowed USD 8 billion compared to USD 5.3 billion in the year-ago period on the back of low interest rates (then) prevailing in the European economies.

"In the light of the lingering Eurozone debt crisis, all European banks have less surpluses to lend to overseas corporate houses. Also, the spread has widened in the recent times, making fund-raising more expensive," Indian Overseas Bank chairman and managing director, M Narendra, told PTI.

At present, Libor (the international benchmark rate) plus 4% is the going rate.

Some experts feel that risk aversion is another factor that will see a decline in ECB borrowing.

"In uncertain environments, European banks are risk-averse. So, they are less likely to take exposures to corporates in the emerging markets, making it difficult for Indian industry to raise money through foreign banks," Crisil chief Economist, Dharmakirti Joshi, said.