ECB ceiling raised to $18 billion

Companies have mopped up $11.57 billion abroad in the past 10 months.

The government has raised the ceiling for domestic companies to borrow funds overseas under the external commercial borrowing (ECB) route in 2006-07 to $18 billion from $15 billion.

The increase is in line with the relaxation in the limits for investments by foreign institutional investors (FII) in the debt market, banking sources said.

In the annual Budget 2006-07, the government increased the limit on FII investment in government securities from $1.75 billion to $2 billion and in corporate debt from $0.5 billion to $1.5 billion.

The government maintains an internal limit in consultation with the Reserve Bank of India (RBI) so as to keep a check on total overseas debt.

The sources said the total FII investment in the debt market would also be reckoned a component of ECBs, as this also forms a part of the total external debt of the country.

While credit in the domestic market has been growing at an accelerated rate of over 32 per cent, companies have also been borrowing heavily from overseas markets.

Domestic companies raised around $1.79 billion through ECBs in January 2006, with the cumulative overseas borrowings in the last 10 months standing at $11.57 billion. The reason, according to bankers, is the difference in the interest rates.

Though costs of funds have shot up in the domestic market, the funds borrowed overseas are turning out to be cheap even after taking into account the swap cost (the conversion cost of the dollar into the rupee).

The swap cost takes into account the premiums to be paid for booking dollars for future months, the international interest rate benchmark Libor (London inter-bank offered rate) and the transaction charges.

With good economic fundamentals, Indian papers, too, are also selling overseas like hot cakes. This is because India offers papers with a combination of two positives "" better interest rates and low risks compared with other Asian countries, said a banker.

Thus, in the recent past, it has become a lucrative option to raise funds overseas for not only the triple A-rated companies but also the small- and medium- sector companies.