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.

The Economic Times - - Finance & Commodities - In­vest­ments by FPIs Af­ter four months of sell­ing

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


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

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