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Raising overseas debt has become prohibitively expensive due to the depreciating rupee.
Indian companies' foreign borrowings plunged 20.2 per cent to $23.33 billion in 2024, down from $29.22 billion a year earlier.
With the Indian rupee sliding against the dollar, analysts forecast that corporate India will continue scaling back overseas debt as repayment costs and forward cover prices climb.
The decline last calendar year followed a major uptick in 2023 when foreign loans had more than doubled from $14.38 billion in 2022 -- the sharpest spike in over a decade.
"I don't expect many Indian firms, without a natural hedge, to opt for foreign loans in 2025," said Prabal Banerjee, a financial consultant advising leading corporations.
Raising overseas debt has become prohibitively expensive due to the depreciating rupee, he explained, adding, "several Indian companies are now turning to local banks to raise debt. The cost difference between local and foreign currency loans is now around 200-250 basis points for well-rated companies".
The rupee's depreciation versus spells a challenge for firms lacking forward cover against their loans, experts warned.
However, export-heavy companies like Reliance Industries are better positioned to weather the impact, as their substantial dollar revenues provide a natural hedge, bankers said.
The rupee weakened 2.5 per cent against the dollar, falling from 83.48 in September to end 2024 at 85.57. Over the past year, it has slid 4.4 per cent against the greenback (as on January 14).
A senior treasury executive at a state-run bank noted that raising funds in foreign currency could grow costlier, especially for companies with limited natural hedges.
"Forward cover prices will go up. Also, companies will have to shell out more rupees for buying a dollar (at the time of repayment if the domestic unit falls further). This will weigh heavily on any plans for raising money in dollars," he said.
Global market volatility and corporate caution are already tempering the pace of foreign borrowing, bankers said.
"How US policies evolve under the incoming Donald Trump's administration will be critical for companies considering overseas fundraising," a banker, requesting anonymity, remarked.
On the other hand, a weaker rupee benefits exporters in sectors like IT, pharmaceuticals, textiles, and apparel.
These industries, which earn significant dollar revenue, stand to gain on a net basis after accounting for import costs.
"A weaker rupee will help local pharmaceutical exports. Hope companies use the rupee's devaluation to increase profitability, instead of competing against indigenous competition. In fact, many Indian companies sell below cost to gain market share, which is a flawed competitive strategy," Kiran Mazumdar Shaw, chairperson, Biocon and Biocon Biologics, told Business Standard last week.
Feature Presentation: Aslam Hunani/Rediff.com
