The near 2% fall of the Indian rupee spells trouble for the stock of external commercial borrowings coming up for repayment over the next six months.
Analysts estimate that over
$20 billion worth of ECBs are due for repayment in 2013-14. Data from the government also show that as on September 30,2012,repayments of such loans,including interest scheduled in 2013-14,was $20.12 billion.
This stock could have increased since then as anecdotal evidence suggests that many companies have borrowed more through short-term forex loans since then.
In the macroeconomic and monetary developments report in May,the RBI had noted that short-term
debt has risen mainly due to an increase in ECBs.
According to Sajjid Chinoy,chief economist at JPMorgan,the recent fall in the rupee could increase the outstanding stock by over R6,000 crore,assuming 50% of these are unhedged. The rupee fell 1.92% on Monday to end at a fresh life-time low of 58.14/$.
As on December 30,outstanding ECB stock was $113 billion. But a large part of this stock is long-term,as on an average,ECBs have a 3-5 year maturity period. Between 2007 and 2012,the ECB stock increased three times,indicating that Indian companies have increasingly borrowed through forex loans. In 2013,companies have raised $12 billion through ECBs so far.
Indeed,Indias short-term debt stock is uncomfortably high at $166 billion,but analysts said there is no panic as the bulk of this is trade credit that is rolled over or refinanced easily. Trade credit forms nearly 90% of outstanding short-term debt of the country.
Further,some believe that refinancing ECBs will also be not difficult as global liquidity would be comfortable,notwithstanding the concerns of a pullback of quantitative easing in the US.
India’s external debt burden has risen in recent years,but is manageable,in our view. Regardless of the timing of the Fed actions,we expect global liquidity conditions to remain comfortable enough to mitigate any refinancing risks, said Taimur Baig,chief economist Asean and India at Deutsche Bank.
Nevertheless,the outflow of these repayments will put some pressure on the rupee. The ratio of short-term debt to forex reserves as on December 30,2012,was 56%,a rise of six percentage points in just six months.