MUMBAI, Mar 9: The financial institutions (FIs) have decided to shelve the last phase of their external commercial borrowings (ECB) programme due to lack of demand for such loans among domestic corporates.The three all-India financial institutions -- IDBI, ICICI and IFCI -- had plans to borrow around $400 million during the January-March period. But there is no demand for this. "Our forex borrowing programme has come to a complete standstill during the last quarter of this fiscal,'' admits KD Agrawal, chairman and managing director of IFCI. Given the volatility in the currency markets, corporates are less enthusiastic about taking on forex debt.
The IFCI, which has already exhausted its annual ECB programme of $200 million, had plans to go for an extra $100 million during the last quarter. Now that is off. ICICI is unsure about whether it will go ahead with its ECB programme of around $100 million.
IDBI has shelved its last tranche of ECBs amounting to $150 million. "Why should we borrow anymore whenthere is no demand at all for such borrowing?" asks a senior IDBI official.
The spreads on dollar borrowings have become wider in the aftermath of the southeast Asian crisis. The Japanese banks, which are usually major participants in any large-scale loan syndications, have stopped subscribing to any issues of late.
The institutions' sanctions of foreign currency loans had grown by 16 per cent during the first nine months of the current fiscal. While rupee loans had accounted for 65.9 per cent of the total sanctions, foreign currency loans constituted another 12.8 per cent followed by the underwriting and direct subscription amounting to 15 per cent and guarantees to the tune of 6.3 per cent during the first nine months of the year.
The decision to go slow on ECBs is in line with the earlier decision by the institutions to review the forex exposures of large corporates in view of the substantial depreciation of the rupee. The exercise covers not only the forex loans given by the institutions, but theoverall forex exposures.The exercise particularly covers power and telecom projects, where forex exposures could have a direct bearing on tariffs and the viability of projects.
The institutional review is looking at the level of forex loans already drawn and how much of the balance requirement can be converted to rupee loans.Till the middle of last year, the liquidity crunch had forced corporates to raise forex loans to keep the costs of funding projects down. The institutions were at the forefront of such funding and had funnelled money to several projects which had a natural forex hedge in the form of export proceeds. But those that didn't have a natural hedge were left to their own devices to cover the currency risk.
