External commercial borrowings (ECBs) of Indian corporates have hit a two-year high of $9.23 billion in March 2021. Prior to this, the overseas borrowing of India Inc touched a monthly high of $12.18 billion in March 2019.
The spike in overseas borrowing comes after months of lacklustre demand for external debt due to surplus liquidity in the domestic market, muted credit demand and absence of major expansion plans by Indian corporates since the onset of the pandemic.
After hitting an historic high of $52 billion in FY20, overseas borrowing of India Inc fell sharply since the beginning of FY21. Overseas debt of Indian companies fell to $3.51 billion in the first quarter of FY21 after recording a high of $19 billion in the previous quarter. However, with multiple phases of unlocking and rebound in economic activity, the external fund-raising picked up momentum to reach $9 billion in the second quarter, $7 billion in third and $16 billion in the last quarter of the previous fiscal.
“The lower borrowings from the overseas markets in the current financial year can in large part be attributed to the pandemic-led economic and business disruptions that have made corporates reluctant to borrow and add to their liabilities amid uncertainties about the future business and economic conditions,” CARE Ratings said in its Debt Market Review for February 2021.
The sudden spike in ECBs in March 2021 can largely be attributed to Indian Railway Finance Corporation (IRFC) which alone raised $4.92 billion under RBI’s approval route for the purpose of ‘Infrastructure development’.
“I would not immediately connect the increase in overseas borrowing directly with economic revival. Increase in overseas borrowing could be for a variety of factors such as lower cost of funds, greater liquidity in the international market, negative interest rates in many jurisdictions,” said Adity Chaudhury, Partner, Argus Partners.
She, added that India Inc’s latest results show a healthy recovery post the first wave of Covid-19 and point towards an economic revival but growth in overseas funding will depend on a variety of factors pointed above.
For the full year, India Inc’s overseas borrowing stood at $35.06 billion in FY21, lower than $52 billion fund raise in FY20 and $41 billion in FY19.
Reliance Industries topped that list of overseas borrowers in FY21 raising a little over $7 billion or 20 per cent of the total ECB fund raise of India Inc followed by IRFC ($4.08 billion), REC Limited ($1.95 billion), Adani Ports ($1.75 billion) and ONGC Videsh Rovuma ($1.60 billion).
On a sectoral basis, the financial services sector continues to be the major borrower of overseas debt with a total fundraising of about $10 billion, followed by Coke and refined petroleum manufacturers ($8 billion) and Electricity, gas, steam and air conditioning supply ($3 billion).