Indian companies are increasingly turning to overseas markets for fundraising, driven by heightened international investor interest, improving liquidity conditions, and reduced hedging costs, the Reseve Bank of India (RBI) said in its monthly bulletin on Monday.
This trend marks a significant revival in external borrowing, reflecting the evolving dynamics of the domestic credit landscape, it added.
It is to be noted that Foreign direct investment (FDI) inflows into India fell to $28.1 billion in 2023 from $49.3 billion in 2022. The country slipped seven notches to rank 15 in the World Investment Ranking, marking a dull 2023.
“Banks are preparing to raise equity funds-including through qualified institutional placements-of nearly Rs 40,000 crore in the second half of the current financial year in order to reinforce balance sheets and support capital expansion,” the RBI said.
In response to growing corporate demand for funding, several banks and non-banking financial companies (NBFCs) are diversifying their funding sources, notably through bond issuances in foreign markets.
The offshore syndicated loan market, in particular, is becoming increasingly attractive to corporates, with many anticipating an imminent rate-cutting cycle. “While existing borrowers are making large size issuances, the market is also seeing debut borrowers,” the apex bank said.
During the quarter ending June 2024, banks have, as per the RBI, intensified efforts to raise funds through certificates of deposit, as well as high-value saving accounts and fixed deposits.
However, the low share of low-cost current and saving deposits in total deposits could limit banks’ ability to raise funds domestically through high-cost funding options.
This is expected to exert pressure on banks’ net margins, potentially forcing them to align loan growth more closely with deposit growth and normalize incremental credit-deposit ratios.
Moreover, emerging signs of stress in unsecured loan segments, particularly in personal loans and credit card portfolios, may contribute to this shift in behaviour, the central bank said.
