Finance companies led the overseas borrowing spree in February, raising around 44% of the total External Commercial Borrowings (ECB). These firms raised nearly $1 billion in February out of the total $2.2 billion raised via ECBs, according to the Reserve Bank of India (RBI).
Companies raised around $41 billion during April-February of the current fiscal compared to $22.8 billion during the same period in previous fiscal, reflecting a surge of around 80%.
“From NBFC view point, at a time when domestic banks have been facing deposit constraints ECBs have been a great source of funding diversification for them and global market appetite has ensured competitive terms,” Piyush Agarwal, senior managing director, head- corporate and institutional banking (India), Mizuho Bank, told FE.
“International banks have growing appetite for Indian credits, so they have actively supported Indian NBFCs funding requirements,” he added.
JSW Vijayanagar Metallics came at the top in terms of borrowing from overseas in February as it raised $250 million to meet funding requirement for its new project. Among the NBFCs, Cholamandalam Investment & Finance raised the highest amount ($200 million) followed by REC Limited ($147.9 million) in February. Export-Import Bank of India raised $127 million and Bajaj Finance raised $125 million.
“NBFCs have increased borrowing overseas after the RBI raised risk weights, which has raised the cost of capital for them. Overseas borrowing will help NBFCs to meet their funding requirement amid high credit demand,” said Madan Sabnavis, chief economist, Bank of Baroda. “Apart from NBFCs, infrastructure companies and public sector entities frequently use ECB route to raise funds,” he added.
Companies raise funds via ECB to meet funding requirement for a variety of purposes, including capex, working capital requirement, acquisition of assets, and repayment of existing loans, ECB refers to borrowing by domestic firms overseas through loans, bonds or alternative financial instruments.
“Companies expect interest rates to fall in the US which would lower their borrowing cost. Raising funds via ECB helps companies to diversify their source of funding,” said head of treasury of a private bank. “Higher overseas borrowing also due to increased capital expenditure by companies,” he added.
Companies get interest rate advantage in raising funds from abroad. Corporates can borrow at secured overnight financing rate (SOFR), a benchmark for pricing loans, plus 200-300 basis points, which is lower than lending rates of Indian banks.