Rush to raise money through ECBs by Indian companies that are becoming increasingly difficult

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Mumbai, Ta. 09 October 2019, Wednesday

Indian companies are being forced to look to foreign markets to meet their financial needs due to a significant reduction in credit flows by the country's business sector.

External commercial borings (ECBs), which are required by Indian companies to meet their working capital requirements, have increased tenfold in the first five months of the current fiscal year.

Indian companies raised $ 1.8 billion through the ECB during the current financial year, compared to $ 1.8 billion in the April-August period of the last financial year, according to the Reserve Bank data.

The overall credit growth has been slow as a result of banks avoiding risk taking and the slowdown in the economy, the Reserve Bank recently said in its monetary policy statement. The Reserve Bank has put a limit on the rate of ECBs, which is 8.5% in addition to Libre. If Libor is two percent, then a company can borrows between 5 percent and 5 percent abroad, which is much lower than the home-lending rate.

Currently, it is becoming difficult for companies to get working capital loans in the Indian market for a period of five years. Most banks are willing to provide loans for a maximum period of two years.

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