External commercial borrowing of India Inc may stay muted in FY23

Approvals may be $30-35 bn in FY23, says ICRA

The external commercial borrowing (ECB) by Indian companies is likely to stay muted in the current financial year due to a sharp increase in interest rates in developed markets. 

Rating agency ICRA said ECB approvals were expected to remain at $30-35 billion in FY23, which would be lower than $38.6 billion in FY22. The approvals stood at $35.1 billion in FY21.

The approvals fell to $6.67 billion in the second quarter ended September 2022 (Q2FY23) from $10.2 billion in the same period a year ago. However, sequentially, they were up from $3.37 billion in Q1FY23.

Given the sharper increase seen in the US-Fed rates, which appears likely to continue till December 2022, the all-in borrowing costs are likely to remain higher than domestic funding costs for Indian corporates. This, in turn, is likely to keep ECB approvals subdued.

Moreover, despite moderation seen in forward premiums/hedging costs over the past few months, all-in costs for ECBs remain higher.

The Reserve Bank of India had announced measures like raising the limits for eligible entities to raise ECBs under the automatic route to $1.5 billion from $0.75 billion per financial year. The regulator had also raised the permissible all-in cost ceiling by 100 basis points (bps) to 600 bps till December 31, 2022.