With favorable opportunities for Indian enterprises in foreign markets, eight non-banking financial companies (NBFCs), including one that is government owned and specializes in infrastructure financing, intend to raise more than $2 billion through external commercial borrowing (ECB).
Based on RBI data, the NBFCs that applied for ECB in January are REC (more than $500 million), Tata Motors Finance ($200 million), L&T Finance Holdings ($125 million), and Shriram Finance ($750 million).
According to a senior official at State Bank of India (SBI), there is a softening bias in global interest rates and cheap hedging costs, which will likely lead to an increase in foreign borrowing by Indian companies, particularly highly rated NBFCs.
In agreement with the SBI executive, a senior representative of a sizable NBFC stated that although cost concerns were favorable, more funding sources were also required. He continued, saying that the all-in price is now competitive with domestic fundraises.
Even though these funds were raised by Indian lenders' foreign branches, an executive from a public-sector lender stated that it is wise for lenders to consider their total exposure for risk management, including both domestic and international exposure.
According to the "State of Economy" article in the RBI monthly bulletin for February, there were more ECB registrations ($36.1 billion) and disbursements ($25.6 billion) during the April–December 2023 period than there were during the similar period in previous years.
Following the exceptionally high ECB registration ($21 billion) in Q1FY24, new registrations dropped to $8 billion in the second quarter and $7 billion in the third.
After accounting for principal payments, net ECB inflows this year have totaled $5.6 billion, compared to net outflows of $2.3 billion during the same period last year.
Over three-fourths of all ECBs recorded between April and December 2023 are for capital expenditures. Additionally, it stated that about three-fourths of the ECBs raised were hedged through loans denominated in rupees or from overseas parents, significantly offsetting the interest rate and exchange rate sensitivity of international exposures.
It further stated that the global benchmark interest rate, the secured overnight lending rate, rose by 50 basis points between April and July 2023 before stabilizing later in tandem with a halt to tightening global monetary policy.
