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India Inc goes slow on overseas loans
At $3.5 billion, borrowings in March quarter is half of loans in the same quarter of FY15
Dev Chatterjee | Mumbai March 24, 2016 Last Updated at 23:35 IST
Indian companies have raised $3.5 billion from overseas till date this calendar
year, less than half of $7.2 billion they raised in the March quarter last year.
The drastic fall in overseas loans suggests that Indian companies are not
planning to increase capital expenditure anytime soon.
Experts said the decline in overseas loans is mainly because many Indian
companies have burnt their fingers by borrowing foreign currency loans
without taking forward cover for protection from forex volatility.
"After getting badly hit, the charm of forex loans for India Inc has come down
significantly and not many CFOs are now thinking of tapping overseas
markets," said Prabal Banerjee, president of the Bajaj Group.
Besides, the credit default swap of Indian companies has gone up substantially,
deteriorating their credit quality. This is making forex lenders reluctant.
"Another reason is that the condition of overseas lenders has turned so bad that
they hardly have any appetite for exposure. They have very limited balance
sheet strength to lend to corporates, particularly in the emerging markets. All the banks ­ American, European and Chinese ­ are now in the
same rocky boat," Banerjee said.
"This situation will continue and we will find that overseas loans to India Inc will come down further in the coming quarters," he added.
This, however, will not impact well­rated companies like Reliance and ICICI Bank. RIL refinanced an earlier loan of $1 billion this week
while ICICI Bank raised $750 million from its Gulf­based branch.
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Experts said amid tardy manufacturing and infrastructure growth, there is less
demand for overseas funds. Despite Narendra Modi­led government's push for
revival of manufacturing sector, most of the top companies have turned the tap off
fresh capital expenditure. On March 11, the government announced that the
industrial output for January fell for a third consecutive month by 1.5 per cent.
Most corporate loans are being taken from local banks for working capital
purposes, said an analyst.
"Companies have been waiting for clues from the Budget and will probably recast
investment plans in the next fiscal. As interest rates are expected to come down,
some companies are also deferring their plans, especially in the bond market where
the rate gets fixed. In foreign markets, with rates moving up in the United States
and the rupee being volatile, there is less enthusiasm. We would expect things to
pick up second quarter FY17 onwards," said D R Dogra, MD & CEO of CARE
Ratings. The Budget did not announced new incentives for the manufacturing
sector and most CEOs said they would wait for some more time before taking call
on fresh investments.
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