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Financial companies dominate overseas lending in April – Banking and Financial News
Financial services companies took the lead in external loans during the month of April, raising US$1.88 billion, representing 44% of total external commercial loans (ECB). Companies raised a total of $4.28 billion in the first month of the current fiscal year, according to the latest data from the RBI.
“Non-bank financial companies rely heavily on banks to meet their financing needs, and the RBI advised NBFCs to scale up their fundraising to limit dependence on banks,” Madhavankutty G, group chief economist, Manappuram Finance, he told FE. “The ECB is one of the ways to diversify sources of financing.”
Muthoot Finance came out on top in terms of overseas borrowing as it raised $750 million to meet its financing needs. The Dhamra LNG Terminal came in second place, raising US$600 million. India Oil raised $550 million, REC raised $393 million and Hero Fincorp raised $250 million.
The ECB refers to loans taken out by national companies abroad through loans, bonds or alternative financial instruments. Companies obtain an interest rate advantage when raising funds abroad. Companies can borrow at the Secured Overnight Financing Rate (SOFR), a benchmark for pricing loans, plus 200-300 basis points, which is lower than Indian banks’ lending rates.
Experts say NBFCs increased their overseas lending after the RBI increased risk weights in November, resulting in higher cost of capital for non-bank lenders.
“NBFCs are raising funds from all possible sources to meet the high demand for credit,” said a senior official of an NBFC. Companies expect interest rates to fall in the US, which would reduce the cost of their borrowing, he added.
Companies raise funds through the ECB to meet financing needs for a variety of purposes, including capex, working capital needs, asset acquisition and repayment of existing loans.