India Inc’s Foreign Borrowings Drop 20.2% In 2024 As Rupee Slips

This decline follows a significant surge in 2023, when foreign loans more than doubled from $14.38 billion in 2022, marking the sharpest increase in over a decade

The rupee weakened by 2.5 per cent against the dollar, falling from 83.48 in September to close 2024 at 85.57

Source : ABPLIVE AI

Indian companies' foreign borrowings dropped by 20.2 per cent to $23.33 billion in 2024, compared to $29.22 billion the previous year. The decline comes as the Indian rupee weakens against the dollar, and analysts predict that corporate India will continue to reduce overseas debt due to rising repayment costs and higher forward cover prices.

This decline follows a significant surge in 2023, when foreign loans more than doubled from $14.38 billion in 2022, marking the sharpest increase in over a decade.

Prabal Banerjee, a financial consultant advising major corporations told Business Standard, “I don’t expect many Indian firms, without a natural hedge, to opt for foreign loans in 2025.” 

He noted that raising overseas debt has become increasingly expensive due to the depreciating rupee. “Several Indian companies are now turning to local banks to raise debt. The cost difference between local and foreign currency loans is now around 200-250 basis points for well-rated companies,” he added.

Experts have warned that the rupee’s depreciation poses a significant challenge for companies without forward cover against their loans. However, export-driven companies such as Reliance Industries are better equipped to manage the impact, as their considerable dollar revenues offer a natural hedge, according to bankers, states the Business Standard report.

The rupee weakened by 2.5 per cent against the dollar, falling from 83.48 in September to close 2024 at 85.57. Over the past year, it has depreciated by 4.4 per cent against the US dollar, as of January 14.

A senior treasury executive at a state-owned bank highlighted that raising funds in foreign currency could become more expensive, particularly for companies with limited natural hedges. “Forward cover prices will go up. Also, companies will have to shell out more rupees for buying a dollar (at the time of repayment if the domestic unit falls further). This will weigh heavily on any plans for raising money in dollars,” he said.

According to bankers, global market volatility and corporate caution are already slowing the pace of foreign borrowing. “How US policies evolve under the incoming Donald Trump's administration will be critical for companies considering overseas fundraising,” said one anonymous banker in the report.

On the other hand, a weaker rupee benefits exporters in sectors such as IT, pharmaceuticals, textiles, and apparel. These industries, which generate substantial dollar revenues, stand to gain after accounting for import costs.