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India Inc may have to reduce overseas borrowing

India Inc may have to reduce overseas borrowing

Mumbai: In the coming days, Indian corporate houses may borrow less through the ECB route despite RBI easing the overseas borrowing norms, as western banks are less willing to take positions in the emerging markets.

The falling rupee is also adding to the concerns of the corporates, as they fear higher repayment burden. Already, external commercial borrowings -- ECBs -- are in tight supply, with swap getting pegged at over Libor plus 4%.

This trend is in a sharp contrast to the first quarter, when domestic firms borrowed $8 billion compared to $5.3 billion in the year-ago period on the back of low interest rates (then) prevailing in the European economies.

“In the light of the lingering Eurozone debt crisis, all European banks have less surpluses to lend to overseas corporate houses. Also, the spread has widened in the recent times, making fund-raising more expensive," Indian Overseas Bank chairman and managing director, M Narendra, told PTI.

At present, Libor (the international benchmark rate) plus 4% is the going rate.

Some experts feel that risk aversion is another factor that will see a decline in ECB borrowing. “In uncertain environments, European banks are risk-averse. So, they are less likely to take exposures to corporates in the emerging markets, making it difficult for Indian industry to raise money through foreign banks," Crisil chief Economist, Dharmakirti Joshi, said.

Joshi also said that recent easing of the ECB norms may help the situation to an extent. “The easing...will help in repayment of overseas borrowing obligations like foreign currency convertible bonds (FCCBs) and hordes of small savings that are due for redemption. But, how it is going to help overseas borrowing, will depend on the external environment, particularly (in) the Europe."

Another reason for falling appetite is the cash pile that leading corporates are sitting on. “Lot of people have enough cash, so they are not in a borrowing mood," Axis Bank president for Corporate Banking, Nilesh Shah, pointed out.

Last month, RBI increased, by 50%, the ECB limit under the automatic route to $750 million per year, from $500 million earlier.

However, in the aftermath of the sovereign debt crisis in the Eurozone economies, domestic companies are finding it difficult to raise money overseas.

Narendra also said that risk of rupee depreciation along with lack of natural hedge are other factors restricting corporates.

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