Too many Curbs, Better Local Rates make ECBs a Dull Option
2,300 80,310 20,000 Slow growth, stagnant capex limit ability of companies to borrow 1,246 2,344 1,098 frenzy, overseas investors are turning out to be net buyers in February.
Mumbai: Indian companies have slowed down external commercial borrowings (ECBs) this fiscal as domestic rates have fallen, allowing them to borrow at a cheaper cost from home. Slow growth, stagnant capital expenditure and end use restrictions on ECBs have also limited Indian companies’ ability to borrow, bankers said.
Companies have borrowed $12.88 billion through ECBs in the first nine months of the current fiscal year as against $20.09 billion borrowed in the same period in fiscal ending March 2016.Bankers said the borrowing needs of companies have come down because of the slow industrial growth this year.
The Economic Survey released last week said the industrial growth rate comprising mining & quarrying, manufacturing, electricity and con-
Last 3 sessions
crore into capital market PULLOUT struction is likely to decline to 5.2% in 2016-17 from 7.4% in 2015-16.
India’s GDP growth is likely to slow down to 7.1% in the current fiscal year from an upwardly revised 7.9% growth recorded a year earlier mainly due to a weak industrial sector, according to government estimates. crore BEFORE THAT INFLOW
crore IN EQUITIES cr TOTAL INFLOW: cr IN DEBT TheEconomicSurveyhasassumeda baseline growth of 7% with a 25 to 50 basispointsimpactduetothedemonetisation.“ThelowerECBborrowing so far this year is an indication of the slow growth in India,” said Ashwini Kapila, managing director, Barclays. “Companies do not need big bucks cr
REASON FOR INFLOW
proposed that category I and II FPIs should be exempted from taxation on indirect transfers, which cheered up investors. because capital expenditure is not happening. Also, domestic rates have comedownsosharplythatthelanded costs of ECBs is not that cheap any more. All this has had an impact on ECB borrowings this year.”
Thenthereareinterestrateceilings, end use restrictions and borrowing caps, which make it difficult for borrowers to access overseas markets. “These restrictions coupled with the fact that companies can raise money by selling rupee bonds abroad without an interest rate cap have also impacted the demand for ECBs,” said Jayesh Mehta, managing directorglobal markets group at Bank of America-Merrill Lynch (BoA-ML).
For example, companies in infrastructure, manufacturing, software and NBFCs can currently borrow three-year foreign currency loans up to $50 million (`336 crore) by paying a maximum interest rate of 300 basis points above the six-month London Interbank Offer Rate (Libor). Source: PTI
From October-January Inflow from Feb 1-3 Finance Minister Arun Jaitley