Indian companies’ external commercial borrowings (ECBs) of less than five-year maturity periods, or short-term borrowings, have seen a sharp drop. They’ve fallen from 40 per cent of the total in 2007-08 to 11 per cent in April-January of 2011-12.
ECBs of longer maturity periods have considerably grown, with the percentage of between five and seven-year maturities growing from 45.8 per cent in 2007-08 to 67.7 per cent in the first 11 months of 2011-12. Total borrowings through this mode touched $29.5 billion in April-January 2011-12, compared with $28.1 bn in 2007-08.
According to a finance ministry analysis, the data show Indian companies now prefer long-term ECBs over short-term borrowings. The contribution of ECBs with maturity periods of seven to 10 years in 2007-08 was 11.5 per cent, which rose to 16.8 per cent in April-January 2011-12. The percentage of ECBs with maturity periods of more than 10 years in 2007-08 was 2.1 per cent. During the first 11 months of 2011-12, it was 4.5 per cent of all ECBs.
In terms of sectors, ECBs for the infrastructure sector rose from 15.2 per cent in 2007-08 to 42.3 per cent of the total in 2010-11. During April-January 2011-12, ECBs raised for this sector were 41.8 per cent.
Ministry officials said relaxation in the ECB norms and the cost of borrowings were reasons behind the trends. They added ECBs were attractive for domestic borrowers because the cost of raising these was lower than that for domestic borrowings. ECBs give domestic borrowers an additional avenue to access a diversified set of lenders and raise large amounts from global financial markets. The cost of 57.7 per cent of the ECBs raised in April-January 2011-12 was under Libor (London interbank offered rate) +300 basis points. According to estimates, the total ECBs raised in 2011-12 were $35.9 bn, against $25.2 bn in 2010-11 and $17.6 billion in 2009-10.
The ECB ceiling for 2011-12 was raised from the earlier $20 bn to $30 bn. In Budget 2012-13, finance minister Pranab Mukherjee had announced measures to facilitate funds through ECBs for the infrastructure sector. Apart from the initiatives for the power and roads sectors, the government has decided to permit ECBs for working capital requirements of the airline industry for a year, subject to a total ceiling of $1 bn.
It has also allowed ECBs for low-cost housing projects, as well as a reduction in the rate of withholding tax on interest payments on ECBs from 20 per cent to five per cent for three years for power, airlines, roads and bridges, ports and shipyards, affordable housing, fertiliser and dams.
