Firms mop up $12 billion via overseas loans

Indian corporates have raised around $11.9 billion through overseas borrowing in the first five months of 2007-08, according to the Reserve Bank of India (RBI) data on external commercial borrowings (ECB).

Corporates such as Essar Steel, Reliance Petroleum, Indian Oil Corporation (IOC), Larsen & Toubro, Tata Motors, Reliance Industries, Jet Airways and Jaiprakash Associates were the prominent borrowers.

"In August, we have the ticket size of corporate borrowings overseas coming down. Barring two or three deals, we have seen the ticket size of corporate borrowing overseas come down,'' said a banking analyst.

The government has imposed restrictions on ECBs in August, stipulating that overseas borrowings to meet the rupee expenditure will be allowed only after obtaining the prior RBI approval and companies will need to keep the funds overseas till they are actually required for making payments.

ECBs above $20 million have been permitted only for the foreign currency expenditure for permissible end-uses and are required to be parked abroad.

Subsequently, RBI has also received in-principle clearance from the government to keep on hold all applications for overseas borrowings till a clearer picture emerges on management of the copious foreign capital inflows.

Prior to the curbs, the central bank in May had lowered the interest rate ceiling on ECBs to 150 bps over the six-month Libor from the earlier 200 basis points for loans of 3-5 years.

For loans over 5 years, the ceiling had been reduced to 250 basis points over the six-month Libor from 350 basis points. One basis point is one-hundredth of a percentage point.

"The impact of this directives will be seen in the coming months. The norms have affected the ECB plans of SMEs the most. Greenfield infrastructure projects and mid-sized corporations will also now find it difficult to raise funds for five years and more within the Libor plus the 250 basis points cap stipulated by RBI," said a private banker.