Casualty of falling rupee: Companies that borrowed from lenders abroad

This improvement is apt to person far-reaching implications for Indian companies that person relied heavy connected outer commercialized borrowings (ECBs) to money their operations. As the rupee continues to weaken, these companies, which raised funds erstwhile the rupee was unchangeable astatine astir 82-83, volition beryllium forced to reassess their fiscal strategies and research ways to mitigate the interaction of the currency’s decline. The RBI has seemingly changed its strategy and appears to beryllium allowing the currency to depreciate successful enactment with different planetary currencies.

According to the RBI, connected a cumulative basis, ECB registrations ($33.8 billion) arsenic good arsenic disbursements ($ 30.9 billion) during April–November 2024 were higher successful examination with the corresponding play past year. Adjusting for ECB outflows connected relationship of main repayment of $ 17.4 billion, nett ECB inflows ($ 13.5 billion) during the existent fiscal twelvemonth was much than treble than a twelvemonth agone ($ 5.6 billion). Non-banking concern companies (both backstage and PSUs) led the fund-raising workout done the ECB route.

Cumulatively, during 2023-24, registrations (at $ 49.2 billion), disbursements (at $ 38.4 billion) arsenic good arsenic nett inflows (at $ 9.5 billion) nether ECBs were substantially higher than the levels recorded successful 2022- 23, the RBI said. More than 70 per cent of ECBs raised during 2023-24 were efficaciously hedged successful presumption of explicit hedging, rupee denominated loans oregon loans from overseas parents, limiting the interaction of outer shocks, the RBI said successful the ‘State of the economy’ report.

Almost one-third of overseas borrowings of Indian firms is not hedged. Indian companies that raised oregon person projected to rise funds done ECBs implicit the past 36 months include: Reliance Industries Ltd ($1 billion), Bajaj Finance, InterGlobe Aviation, REC ($500 million), Tata Motors Finance ($200 million), L&T Finance Holdings ($125 million), Shriram Finance ($750 million), HDB Financial ($250 million), Cholamandalam Finance ($250 million), Tata Capital Housing Finance $100 million) and Manappuram Finance ($100 million).

According to Madan Sabnavis, Chief Economist, Bank of Baroda, the caller depreciation successful rupee is simply a interest particularly arsenic companies whitethorn not person hedged currency risk. In the existent authorities they whitethorn person to measurement the vantage of little rates with higher forex risk. “Cost of hedging is up arsenic seen successful guardant rates. But companies volition ticker and spot however the RBI looks astatine the rupee and defends the same,” Sabnavis said.

On $38.4 cardinal disbursements successful 2023-24, arsenic overmuch arsenic $ 11.52 cardinal is not hedged for currency risk, leaving those companies that raised this wealth astatine sizeable currency risk.

The rupee has fallen 2.12 per cent since December 2024. When the rupee declines, the worth of the dollar increases comparative to the rupee. This means that Indian companies with ECBs volition person to wage much rupees to work their overseas currency-denominated debt.

A weaker rupee tin pb to higher involvement rates connected ECBs, arsenic lenders request higher returns to compensate for the accrued currency risk. Sustained depreciation of the rupee tin besides pb to a emergence successful overseas portfolio outflows from the banal markets.

“The moot question is that the RBI kept the rupee unchangeable for rather some… this worked retired successful favour of companies. The economical script has changed, India’s export competitiveness was eroded and determination is an economical slowdown. The cardinal slope had to merchantability dollars to forestall a slump successful the rupee. But it can’t spell connected depleting the forex kitty and they volition person to let the rupee to depreciate. This has gone against companies that raised funds done ECBs,” said an expert with concern banking group.

There could beryllium much occupation successful store for the overseas borrowers. “New (RBI) politician has been dealt an intolerable hand, inheriting an unsustainable argumentation and level of the rupee. He is overmuch much unfortunate than perpetrator… has to decline: the lone question is however much?” erstwhile Chief Economic Advisor Arvind Subramanian said successful a station connected X (Twitter).

“The RBI’s ain calculations suggest ample over-valuation: truthful the rupee has to diminution a batch much particularly if the US imposes tariffs. Only 2 choices for the RBI are: let gradual rupee diminution oregon judge large, discrete decline. Both are problematic and painful,” Subramanian wrote.

“Gradual diminution volition not caput disconnected speculative unit which could intensify. Discrete diminution could stem unit but disrupt firms and the economy. All this volition unfold successful existent clip amidst clamour an pain. Economy volition person to brace itself for unavoidable turbulence,” Subramanian wrote connected X.

“The depreciation unit connected the rupee is stemming mostly from a stronger dollar. Even so, India’s beardown fundamentals person constricted the descent successful the rupee, with the depreciation successful the home currency little than different planetary currencies, successful presumption of spot rates, NEER ground arsenic good arsenic inflation adjusted basis,” Bank of Baroda said successful a report.

“This besides suggests that we tin expect a further depreciation successful the rupee of 20-30 paise from existent levels successful existent presumption and successful nominal presumption by 1.4 per cent,” it said.

Significantly, the RBI ‘State of the economy’ study says that 40 per cent of the full ECBs registered during April – November 2024 was related to superior expenditure, including on-lending and sub-lending. This raises the question astir the utilisation of the remaining 60 per cent. It raises doubts whether these companies utilized the ECBs to repay costly home borrowings.

A conception of the analysts expects the rupee diminution to payment immoderate segments. ‘A weakening Indian rupee is apt to favour overseas investments, particularly from NRIs, successful the existent property market. This is expected to thrust maturation successful the luxury segment, wherever their contributions are significant. However, from an NRI concern perspective, exit realizations and rental income volition beryllium little favourable owed to weakening of Rupee against large currencies,” Divyesh Shah, Director, CareEdge Ratings.