8 NBFCs to raise $2 bn through ECB after positive outlook for Indian firms

Overseas borrowing by Indian corporates and high-rated non-banking financial companies (NBFCs) is likely to grow as hedging costs are low and there is a softening bias of global interest rates

Eight non-banking financial companies (NBFCs), including a government-owned infrastructure finance company, are planning to raise over $2 billion through external commercial borrowing (ECB), with prospects for Indian firms in overseas markets being conducive.

The NBFCs, which filed for ECB in January with the Reserve of India (RBI), include REC (over $500 million), Tata Motors Finance ($200 million), L&T Finance Holdings ($125 million), and Shriram Finance ($750 million), according to the RBI data.

A senior executive with State Bank of India (SBI) said overseas borrowing by Indian companies, including highly rated NBFCs, was likely to grow because hedging costs were low and there was a softening bias in global interest rates.

Concurring with the SBI executive, a top official with a large NBFC said while cost considerations were conducive, there was also a need to expand the sources of funds. The all-in cost has become competitive when compared to domestic fundraise, he added.

While these are funds raised by Indian lenders’ overseas branches, it is prudent for lenders to see overall exposure -- domestic plus international -- for risk management, said an executive of a public-sector lender.

During April-December 2023, ECB registrations ($36.1 billion) and disbursements ($25.6 billion) were higher than what they were in the corresponding period in earlier years, according to the “State of Economy” article in the RBI monthly bulletin for February.

After the unusually high ECB registration ($21 billion) during Q1FY24, new registrations normalised to $8 billion and $7 billion during the second and third quarters, respectively.

Adjusting for principal repayment, net ECB inflows stood at $5.6 billion this year so far as against net outflows of $2.3 billion in the corresponding period last year.

Of the total ECBs registered during April-December 2023, more than three-fourths are for capital expenditure. Also, nearly three-fourths of the ECBs raised were hedged through rupee-denominated loans or loans from foreign parents, offsetting considerably the interest and exchange rate sensitivity of foreign exposures, it added.

The secured overnight financing rate, the global benchmark interest rate, increased by 50 basis points during April-July 2023 but stabilised later in line with a pause in global monetary policy-tightening measures, it added.