India Inc increasingly turning to ECB for its capex needs, says RBI

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Published: February 12, 2020 2:30:57 AM

However, sectors like construction and metal products showed lacklustre momentum in FY19, with aggregate project cost reducing significantly.

During FY19, corporates raised capex worth Rs 1.96 lakh crore, an increase of 24% over the previous fiscal year.During FY19, corporates raised capex worth Rs 1.96 lakh crore, an increase of 24% over the previous fiscal year.

India Inc has significantly increased raising capital through External Commercial Borrowings (ECB) in 2019-20. Total loans taken for capital expenditure (capex) through the ECB channel increased 55% y-o-y to Rs 61,833 crore in the first half of financial year 2019-20, said a Reserve Bank of India (RBI) article.

This trend of corporates borrowing through ECBs was visible during FY19 as well, when banks and financial institutions sanctioned 414 proposals of private companies, with a total cost of Rs 1.76 lakh crore, but a larger number of companies accessed funds through ECBs.

“There are 535 companies, which did not avail of any financing from the banks or financial institutions, but contracted loan amount of Rs 76,515 crore through ECBs or Foreign Currency Convertible Bonds (FCCBs),” the article, authored by members of the department of statistics and information management at the central bank, said.

During FY19, corporates raised capex worth Rs 1.96 lakh crore, an increase of 24% over the previous fiscal year.

“This improvement can be mainly attributed to ECB channel of capex financing,” the article said. Additionally, already-sanctioned projects, that are in the pipeline, are expected to be high in FY20 at around Rs 1.2 lakh crore, compared with Rs 84,602 crore in FY19.

Ports and airport projects funded by banks and financial institutions in FY19 saw a surge in aggregate cost of projects, the article said. Cost of cement projects also rose sharply, with its share in aggregate cost rising 510 basis points (bps) to 5.7%.

“Total project cost (and number of projects) in ‘cement’ industry rose markedly from Rs 1,068 crore in 2017-18 to Rs 10,138 crore in 2018-19 (from three to eleven projects respectively),” the article said.

However, sectors like construction and metal products showed lacklustre momentum in FY19, with aggregate project cost reducing significantly.

“Their significant reduction in aggregate project cost as well as number of projects and this slippage is likely to impact the growth for some time,” the article said. The share of metal and metal products in the aggregate cost of projects came down by 700 bps y-o-y to 2.7% in FY19, the article stated.

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