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Mumbai, Oct. 2: It’s just another grim statistic to toss into the pot of bad news: external commercial borrowings (ECB) by companies are falling this year.
ECB approvals in April-July fell almost 25 per cent to $9.17 billion from $12.22 billion in the same period a year ago.
The government recently relaxed ECB rules to enable companies to access the cheap window for financing new projects. Under the rules set by the RBI, companies can borrow up to a maximum of 500 basis points over the six-month Libor in the case of loan maturities above five years.
But it’s clear that companies aren’t rising to bite the bait at a time industrial output growth has started to stutter, quelling the desire to invest in new ventures.
In slightly broader terms, the outstanding stock of ECBs fell to $104 billion in the April-June quarter of 2012 against $105.21 billion in the preceding three months.
According to the RBI, the stock of ECBs was lower during the quarter because of higher repayments made during the period.
ECBs are foreign currency borrowings raised by domestic corporate houses from confirmed banking sources outside India. With interest rates in India remaining on the higher side, companies had shown a preference to raise cheaper money abroad. According to the RBI norms, companies can borrow up to a maximum of 500 basis points over six-month Libor.
Speaking to The Telegraph, Kavita Chacko, economist at CARE Ratings, said the rupee depreciation might have also played a role. The Indian unit had depreciated more than 9 per cent in the April-June quarter. “The cost of servicing debt tends to increase as rupee depreciates,” Chacko said, indicating that this factor may have led many to postpone their plans.
Notwithstanding the drop in ECBs, it continued to account for a large share of the total external debt.
The RBI here said these borrowings stood at 30 per cent of the total external debt and it was followed by NRI deposits and multilateral debt.
It is expected that with the improvement in sentiment consequent to the Centre’s taking some bold measures, interest shown by corporate houses in ECBs should improve over the coming months.
The central bank has also taken some steps recently to push up inflows from these instruments. It allowed companies to raise more funds through ECBs to repay rupee loans or for new capital expenditure in rupees.
Further, it raised the maximum limit of ECB to 75 per cent of the average foreign exchange earnings in the past three fiscal year, or 50 per cent of the highest export earnings in any of the three years, or whichever is higher.
Earlier, a company could raise up to 50 per cent of its average export earnings in the past three fiscal years.
LOSING APPEAL
ECB approvals in April-July fell 25% to $9.17bn from $12.22bn a year ago
Firms are reluctant to invest in new projects when
industrial growth is faltering
ECBs constitute 30% of
total external debt followed by NRI deposits and
multilateral debt |
