Tag: India Inc

India Inc’s overseas borrowing touches $9.23 billion, a two year high in March

Banking & Finance

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External commercial borrowings (ECBs) of Indian corporates have hit a two-year high of $9.23 billion in March 2021. Prior to this, the overseas borrowing of India Inc touched a monthly high of $12.18 billion in March 2019.

The spike in overseas borrowing comes after months of lacklustre demand for external debt due to surplus liquidity in the domestic market, muted credit demand and absence of major expansion plans by Indian corporates since the onset of the pandemic.

After hitting an historic high of $52 billion in FY20, overseas borrowing of India Inc fell sharply since the beginning of FY21. Overseas debt of Indian companies fell to $3.51 billion in the first quarter of FY21 after recording a high of $19 billion in the previous quarter. However, with multiple phases of unlocking and rebound in economic activity, the external fund-raising picked up momentum to reach $9 billion in the second quarter, $7 billion in third and $16 billion in the last quarter of the previous fiscal.

“The lower borrowings from the overseas markets in the current financial year can in large part be attributed to the pandemic-led economic and business disruptions that have made corporates reluctant to borrow and add to their liabilities amid uncertainties about the future business and economic conditions,” CARE Ratings said in its Debt Market Review for February 2021.

Sudden spike

The sudden spike in ECBs in March 2021 can largely be attributed to Indian Railway Finance Corporation (IRFC) which alone raised $4.92 billion under RBI’s approval route for the purpose of ‘Infrastructure development’.

“I would not immediately connect the increase in overseas borrowing directly with economic revival. Increase in overseas borrowing could be for a variety of factors such as lower cost of funds, greater liquidity in the international market, negative interest rates in many jurisdictions,” said Adity Chaudhury, Partner, Argus Partners.

She, added that India Inc’s latest results show a healthy recovery post the first wave of Covid-19 and point towards an economic revival but growth in overseas funding will depend on a variety of factors pointed above.

For the full year, India Inc’s overseas borrowing stood at $35.06 billion in FY21, lower than $52 billion fund raise in FY20 and $41 billion in FY19.

Top borrowers

Reliance Industries topped that list of overseas borrowers in FY21 raising a little over $7 billion or 20 per cent of the total ECB fund raise of India Inc followed by IRFC ($4.08 billion), REC Limited ($1.95 billion), Adani Ports ($1.75 billion) and ONGC Videsh Rovuma ($1.60 billion).

On a sectoral basis, the financial services sector continues to be the major borrower of overseas debt with a total fundraising of about $10 billion, followed by Coke and refined petroleum manufacturers ($8 billion) and Electricity, gas, steam and air conditioning supply ($3 billion).

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Uday Kotak, BFSI News, ET BFSI

Banking & Finance

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Uday Kotak, MD & CEO, Kotak Mahindra Bank, in conversation with Nikunj Dalmia of ET NOW at the Times Network India Economic Conclave 2021.
During the last India Economic Conclave (IEC), you had said that India needs banks but it needs few PSU banks, it needs adaptation of fintech and it needs consolidation in the sector. I guess you knew what was happening because that indeed is happening one year after our interaction?
I do believe that India has made very serious progress in this pandemic era and actually grasped the opportunity of what we need to do. Therefore the financial sector is in for a significant change. The government’s move of testing out with two public sector banks is first of its kind and this combined with the fact that over time you will have four or five large state owned banks and private sector banks and at the same time opening up competition in the sector is the right way to go. At the same time, we need to be clear that in the last one year, Covid has changed our lives in the field of technology and financial services by a multiplier of five. What would have otherwise taken us five years is happening in one year. That is what we are going to be ready for.During the course of 2020 every time we interacted with you on various forums your words were: “India Inc has been hit. It is like a ship which is now trapped in muddy waters.” Is the challenging time behind us? Has the ship reached the shore?
Covid has created a new category of what I call as haves and have nots. The people who have had access to capital are in the category of haves and that is primarily the organised sector or companies which have access to public markets as also private equity and the have nots are the ones who did not have access to capital. There is a very stark difference between the haves and the have nots, based on access to capital. Therefore, even if you are from a stressed sector, if you have access to capital you are in good shape. If you do not have access to capital, you are in a tougher position and that is the difference which we have seen happen in front of us. That is as a result of dramatic pouring of money and liquidity globally and in India as well. That has enabled equity capital to rescue most of the organised sector.

The broad commentary from India Inc is one of highest-ever margins, strongest demand visibility and high optimism. A year ago, there was fear, gloom and doom on the Street. How does one differentiate the kind of indications which we are getting from India Inc.? Are these permanent or are there spurts of demand like sugar rush?
One year ago we did not know what hit us, we had no idea of the contours of the Covid impact. Today one year later, we seem to understand the virus a little better though it continues to mutate. At the same time, there is greater optimism on the possibility of vaccination of a lot of our people though I think it is going to take a few months more for us to get to a more comfortable place.

At the same time, we have started being able to deal with this virus in terms of our lives, what we can do, what we cannot do. We have adapted our life to the new reality. All these are the pluses and that is one of the reasons why business and industry feels they are in a better place than what it was one year ago.

Having said that, things will need to be better handled on the virus and vaccination moving forward but we have to be careful of a mindset of complacency. The virus has not gone one year later. It is still around and we feel more comfortable with it. But the virus is mutating and therefore I will certainly be looking with optimism because we are seeing a changed world. But I keep my guard up. I would not lower my guard too soon and make this more a marathon rather than a sprint.



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Ten reasons why banks are reluctant to lend to big corporate houses, BFSI News, ET BFSI

Banking & Finance

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A few years back, big corporates were the cynosure of the banking sector and were given red carpet treatment while the small borrowers had to fret it out.

However, the ballooning of bad loans by big corporates and the opening up of other lending avenues have turned tables on India Inc.

Credit to industry contracted by 1.3 per cent in January 2021 as compared to 2.5 per cent growth in January 2020 mainly due to contraction in credit to large industries by 2.5 per cent (2.8 per cent growth in January 2020). The outstanding bank credit to large industries declined by Rs 59,610 crore on a year-on-year basis to Rs 22.78 lakh crore as on January 29, 2021, according to the latest RBI data.

So what makes banks shun large corporates?

1. The binding constraint for lending has not been liquidity or interest rates, but risk aversion by bankers, who have been burnt in episodes like DHFL, HDIL, where thousands of crores went kaput.

2. Indian banks are already saddled with one of the world’s worst bad-loan ratios, and are naturally reluctant to add to those risks.

3. Economic activity is still in the doldrums, though it is showing signs of improvement of late, which makes risk assessment difficult.

4. Fresh slippages in the December quarter have risen sequentially, with the top ten lenders by the size of their loan book, adding close to Rs 80,000 crore in slippages during the December quarter.

5. Banks have other avenues to lend. Disbursements under the emergency credit line guarantee scheme was at Rs 1.6 lakh crore, and banks deployed around at Rs 1.4 lakh crore through the targeted long-term repo operation and partial credit guarantee scheme, which served as credit substitutes. These credit is guaranteed by the government and less risky.

6. Fear of prosecution of bank officials if the credit decision goes wrong has also kept banks away from lending huge amounts to corporates.

7. Long gestation periods, the uncertainty of returns and cost overruns that saw fortunes of many top corporate houses dwindle is also keeping banks away.

8. Having burnt their fingers by lending astronomical amounts to large business groups, lenders such as YES Bank intend to stay away from large corporate businesses and rebuild loan book in the mid- and small-corporate segment.

9. Also, there are not enough opportunities as the corporate sector, which account for 49% of the overall bank credit, has put their capital expenditure plans on the back burner.

10. Success of the likes of HDFC Bank in building retail loans has drawn other banks to it. Retail loans are typically secured and risk is evenly spread.



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Reports, BFSI News, ET BFSI

Banking & Finance

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The central government may lift the blanket suspension of the Insolvency and Bankruptcy Code (IBC) to accelerate resolving stressed assets, reported Business Standard quoting sources. The government in December 2020 had postponed the suspension of the IBC till March 24, 2021, owing to stress in various sectors due to covid-19 pandemic. Earlier, it was done for six months effective from March 24, 2020.

“We are exploring two options — one, removing the suspension and allowing the resolution process in view of the rise in the number of fresh cases of default this fiscal year; second, bringing in some provisions to the IBC to exclusively deal with distressed sectors,” said a senior government official privy to the matter, told BS.

It was reported that to discuss the options, officials of the Ministry of Finance, Ministry of Corporate Affairs, and Insolvency and Bankruptcy Board of India (IBBI), along with other stakeholders, will meet this week.

“We don’t want to delay it because we aim to make the final decision by March 15,” the official said.

It is expected the government may also consider giving relief to some of the worst-affected sectors.



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