India Inc’s foreign borrowing plunged to a two-and-a-half-year low at $ 700 million in May, the second more virulent wave of the pandemic and bleak demand outlook forcing companies to shy away from investment and their expansion plans to focus more on cost reduction measures.

External commercial borrowing (ECB) in May was still lower than the $ 996 million raised in April 2020, when the country was under strict national foreclosure. Prior to that, the ECB’s monthly volumes hit a low of $ 540 million in January 2018.

Once a preferred mode

Amid risk aversion and rising interest rates in the domestic market, ECBs have become one of the preferred fundraising modes for India Inc – especially NBFCs – in recent years. before the onset of the pandemic. From $ 17 billion in fiscal 2017, India Inc’s BCEs jumped to $ 41 billion in the next two fiscal years and hit an all-time high of $ 51 billion in fiscal year 20 .

Foreign borrowing, however, fell to $ 35 billion in FY21. As the pandemic-induced economic slowdown, weak demand for credit, and the absence of major expansion plans for Companies are among the main reasons, economic experts point out that companies not only postpone new borrowing, but also repay previous loans to deleverage their balance sheets.

“Within the balance of payments account, under the direction of the ECB, with the exception of T4FY21, the debit side was higher than the credit side. It also peaked in the second quarter of FY21, when economic stress was probably at its peak, ”said Indranil Pan – chief economist, YES Bank, adding:“ This indicates that with the limited funds needed for For the purposes of expansion, the companies probably preferred to reimburse the relatively larger sums. cost the ECBs taken earlier with the surplus funds already available with them.

He also added that it has helped companies strengthen their balance sheets by reducing interest charges at a time when revenue growth was not as expected.

For refinancing purposes

A compilation of the ECB’s targeted fundraising in recent years also reflects this trend. According to RBI data, overseas fundraising for “refinancing rupee loans” and “refinancing past ECBs” increased by $ 6.05 billion in FY19 to $ 9.28 billion in fiscal year 20. In just two months after the start of the current fiscal year, Indian companies have already raised $ 1.54 billion from ECBs for “refinancing” purposes .

Even domestically, credit drawdowns remain woefully low. According to RBI data on the sectoral deployment of bank credit, the withdrawal of non-food credit has also been slower in most industries. On a fiscal year basis, in May, the growth rate of credit underwriting by all industries was -1.2 percent while services declined 2.3 percent.

“The Indian economy will not be able to take a stop-start dynamic in its wake. This is hurting supply dynamics and may have implications for the company’s fund requirements, ”said Pan of YES Bank, adding:“ Future waves of Covid could also imply that consumer confidence and therefore demand remains low and therefore expansion plans are being put in place. disabled. “