India Development News & Foreign Investment Opportunities

Foreign Borrowing Rules Is Credit Positive For Indian Companies

Strong credit profile will help USD borrowing


Strong credit profile will help USD borrowing


S&P Global Ratings said that a relaxation in India’s foreign currency borrowing rules is credit positive for Indian companies, which includes corporates and nonbank financial institutions.

The rule change opens an alternate long-term funding channel amid tight domestic bank financing and should provide greater funding flexibility across all corporate sectors, said S&) on 31 July 2019.

Companies will now be permitted to use proceeds from foreign currency borrowings to refinance Indian rupee debt, the Reserve Bank of India announced on 30 July 2019.

Previously US dollar funds could only be borrowed if earmarked for new capital expenditure.

The resulting over-reliance on domestic funding channels has also made refinancing difficult in recent years.

Term financing from Indian banks has been selective and expensive in light of rising non-performing assets and capital shortfalls at banks.

“However, we anticipate that only companies with strong credit profiles or sovereign linkages will likely avail of this window, due to a number of restrictions on tenor and cost,” said S&P.

A minimum seven-year maturity is necessary for refinancing capital-expenditure loans, and 10-year for refinancing working-capital loans.

The cap on interest costs will also remain unchanged at 450 basis points over Libor, it said.

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