Indian Firms Turning To Overseas Markets For Fundraising: RBI

Indian companies are increasingly turning to international markets for fundraising, driven by a combination of heightened interest from global investors, improving liquidity conditions and lower hedging costs, according to the Reserve Bank of India (RBI). 

The central bank, in its latest monthly bulletin, mentioned a decent revival in external borrowing, pointing to shifts in the domestic credit landscape that are influencing corporate strategies.

This shift towards external borrowing is set against a backdrop of declining Foreign Direct Investment (FDI) inflows into India. FDI fell sharply to USD 28.1 billion in 2023 from USD 49.3 billion the previous year, pushing India down seven spots to 15th in the World Investment Ranking. The drop in FDI marks a subdued year for foreign investment in the country.

To meet the rising demand for corporate funding, Indian banks are gearing up to raise around Rs 40,000 crore in equity funds during the second half of the current fiscal year. These funds, which include qualified institutional placements, are intended to bolster balance sheets and support ongoing capital expansion efforts.

In addition to traditional domestic fundraising avenues, banks and non-banking financial companies (NBFCs) are diversifying their funding sources by issuing bonds in foreign markets. The offshore syndicated loan market is particularly attractive to corporates, with many anticipating a rate-cut cycle in the near future. This market has seen large-scale issuances, both from established borrowers and new entrants, reflecting its growing appeal.

Domestically, banks have been actively raising funds through certificates of deposit, as well as high-value savings accounts and fixed deposits. However, the RBI notes that the relatively low share of low-cost current and savings deposits in total deposits may limit banks’ ability to raise funds through higher-cost options. This could pressure net margins and may force banks to more closely align loan growth with deposit growth, ultimately leading to a normalization of incremental credit-deposit ratios.

The central bank also flagged potential stress in unsecured loan segments, particularly in personal loans and credit card portfolios, which could further influence banks' strategies in the current economic environment.