Rupee deters India Inc from foreign borrowing

Mumbai: Rupee volatility has hit the plans of domestic companies to raise money through external commercial borrowings (ECB). According to RBI data released on Friday, India Inc’s borrowings from foreign markets fell to $2.81 billion in February, down by 9 per cent as compared to the year-ago month. Domestic firms had raised as much as $3.1 billion through the external commercial borrowing (ECB) route in February 2018.

A senior bank of a large PSB said, "Raising foreign borrowings is a function of the currency. An arbitrage opportunity has to be there for companies to raise money overseas. If the dollar interest rates plus the hedging cost is more expensive than than the rupee loan cost, companies won't borrow abroad.”

However, the borrowing trend may reverse soon. "However, now that the US 10-year yield has fallen and the forward premium too has fallen, I expect companies to start raising money through ECBs," the banker added.

Not one company tapped the rupee-denominated bonds (masala bonds) route to borrow from foreign markets in February.

The entire fund mop-up during the month was done through the automatic route of ECB.

The rupee-dollar rate was in the Rs 68-69 range till August 14, 2018 after which it went up to a range of Rs 71/$ on September 3. It set a new level of above Rs 72/$ on September 17 and crossed Rs 73 on October 3, and was above Rs 74 for October 9-11. From November 9 onwards it reverted, to the Rs 72 range and is now in the Rs 68-69 range, with support provided by the foreign portfolio investors. The rupee ended on 69.45 against the dollar on January 1, 2019 and at 70.84 on February 28, a fall of 2 per cent in the first two months of this calendar year.

However, the ECB route was being taken by companies that have a natural hedge or dollar related earnings.

Among the major borrowers were OIL, IOC, HPCL Rajasthan Refinery, and Barclays Global Services Centre Pvt Ltd.