Financial services firms took the lead in overseas borrowing during April as they raised $1.88 billion, accounting 44% of total external commercial borrowings (ECB). Companies mopped up a total of $4.28 billion in the first month of the current fiscal, according to RBI’s latest data.
“Non-banking finance companies are heavily dependent on banks to meet their funding needs, and the RBI has advised NBFCs to broad-base their fundraising to limit reliance on banks,” Madhavankutty G, group chief economist, Manappuram Finance, told FE. “ECB is one of the ways to diversify source of funding.”
Muthoot Finance came at the top in terms of borrowing from overseas as it raised $ 750 million to meet funding requirement for its lending requirement. Dhamra LNG Terminal came second as it raised $600 million. Oil India raised $550 million, REC mopped up $393 million and Hero Fincorp raised $250 million.
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ECB refers to borrowing by domestic firms overseas through loans, bonds or alternative financial instruments. Companies get interest rate advantage in raising funds from abroad. Corporates can borrow at secured overnight financing rate (SOFR), a benchmark for pricing loans, plus 200-300 basis points, which is lower than lending rates of Indian banks.
Experts say that NBFCs have increased their overseas borrowing after the RBI raised risk weights in November, resulting in higher cost of capital for non-bank lenders.
“NBFCs are raising funds from all the possible sources to meet high credit demand,” said a senior official with an NBFC. Companies expect interest rates to fall in the US which would lower their borrowing cost, he added.
Companies raise funds via ECB to meet funding requirement for a variety of purposes, including capex, working capital requirement, acquisition of assets, and repayment of existing loans.
