The RBI has not uploaded data beyond October but overseas borrowing activity typically slows down in the last few months of the calendar year, according to banking executives. Of the total, loans accounted for $24 billion and bonds for $8 billion.
Non-bank finance companies (NBFCs) were the biggest borrowers this year at $16 billion, more than 50% of foreign currency loans and bonds raised by Indian companies, the data show. The objectives for fund raising varied by sector. For instance, shadow banks used the funds for on-lending activities. Industrial companies raised funds for commissioning of new projects and to repay older borrowings raised from overseas sources.
REC, Bajaj Finance, Muthoot Finance, Shriram Finance, PFC and Cholamandalam Finance were the top six borrowers among the NBFCs.JSW Steel, AdaniConnex, UltraTech, IRB Infrastructure, ONGC Videsh, Continuum Energy and Dhamra Terminal were among the major industrial companies that borrowed funds. JSW Steel obtained a $900 million loan in March to repay older foreign currency borrowings while Adani took a similar amount two months later to commission new data centre projects. ONGC Videsh obtained a $800 million loan in July. Reliance Industries, which raised $5.7 billion through foreign currency loans last year, did not feature among this year’s major borrowers.
“For some sectors such as non-bank financial institutions, onshore funding cost has gone up and size is more difficult, leading to some companies prepared to pay up for size,” said Pramod Shenoi, the Singapore-based head of APAC research at CreditSights, a part of the Fitch group.
The RBI increased risk weights for banks loaning funds to NBFCs last year, restricting their access to capital.
Interest rates in the US have hovered above 5% for the most part of the year before a rate cut was announced by the central bank there on September 18, the first in four years. India’s repo rate is at 6.5% though effective borrowing rates could be much higher. The data reveals appetite for overseas funds remained strong throughout the year despite high US interest rates and much of the fundraising was completed before interest rates in that country started softening.
“A lot of companies may choose to borrow offshore because local banks have exposure limits and they may want to keep the rupee limits intact for tactical reasons and borrow in a foreign currency where liquidity is available. So cost is not always the concern,” said an executive at a foreign bank.
The narrowing differential between interest rates in the two countries–they were near zero in the US not so long ago–means currency hedging costs have also come down.
“For a number of companies, the post-swap cost into INR is what matters. The high rates in the US mean the swap cost is lower, so the all-in cost may not be as high as perceived,” said Shenoi of CreditSights.
Hardik Dalal, Barclays’ India head of loans and bonds, said: “In the borrowings space, the ECB (external commercial borrowing) loans have been preferred as they enable corporates to tap into small deal sizes, are less exposed to market volatility and liquidity within the Asian commercial bank’s universe.”
