India Inc still big on foreign loans despite high US rates

NEW DELHI: India Inc’s appetite for overseas loans continues unabated despite US interest rates touching a two-decade high, moving away from bonds.

Indian companies are set to borrow more than $25 billion abroad this year, trumping the $19 billion raised in 2022, according to a top HSBC executive. The UK-headquartered bank has emerged as the No. 1arranger of foreign currency loans this year across league tables.

“Funding continues, with loan volumes up from $11 billion last year to potentially touch $20 billion in 2023, fully offsetting the decline in bond issuances from $7.5 billion to $5.7 billion during the same period,” said Chetan Joshi, HSBC’s head of debt financing.


The federal funds effective rate has climbed by 500 basis points (5 percentage points) from nearly zero on January 1, 2022, to over 5.3% currently.

Indian companies that have usually tapped the international bond markets have changed tack this year and made loans their preferred route of borrowing as fixed-income investors have demanded better returns. For instance, Reliance Industires Ltd and its group entities, which borrowed $4 billion through bonds last year, raised as much as $5.7 billion through loans. State Bank of India raised $1 billion through an offshore loan, solely underwritten by HSBC. It was originally planning a bond issue.

Reserve Bank of India (RBI) data on external commercial borrowings (ECBs) show that Tata Sons, Tata Capital, HDFC Bank, REC, PFC, IIFL Finance, Shriram Finance and SJVNL were among those that raised funds through overseas loans. Air India also raised an overseas loan for leasing planes.

“Indian infrastructure and the BFSI (banking, financial services, insurance) sector continue to exhibit strong growth and require capital, for which international bank lenders have stepped in to meet the requirements,” said HSBC’s Joshi, explaining the uptrend.

Companies such as RIL, Reliance Jio Infocomm and Jio Digital Fibre raised funds for imports or local sourcing of capital goods. Financial institutions such as SBI, HDFC Bank, Tata Capital, REC, PFC, IIFL Finance and Shriram Finance raised money for on-lending or sub-lending activities.

State-run SJVN Green Energy, one of the largest operators of hydro power projects, raised overseas loans for development of a new project.

Drug maker Biocon has reportedly raised a $1.2 billion loan to finance the acquisition of biological drug assets from Viatris.

Market watchers overseas agree that India’s financial sector is increasingly tapping international sources for its capital needs.

“Banks are using the funds in the USD loan book. For non-bank financial institutions, they are swapping it into Indian rupees to use for their on-lending activities,” said Singapore-based Pramod Shenoi, co-head of Asia Pacific research at CreditSights.

HSBC’s Joshi sees the growth in overseas borrowing as endorsement of India’s economic strength.

“There are sub-investment grade borrowers which are accessing the USD loan market and that is clearly a testimony to the overall bullishness of the international lending community towards the India growth story, particularly in the financial services sector,” said Joshi.