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Overseas borrowings to get more expensive after downgrade: Barclays

India has been suffering blow after blow. Corporates are getting squeezed and banks are facing an uncertain future.

, ET Bureau|
Last Updated: Jun 03, 2020, 11.29 AM IST
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India has been suffering blow after blow. Corporates are getting squeezed and banks are facing an uncertain future. British bank Barclays’ India head of banking, Pramod Kumar said that overseas borrowing is tough and unless the government steps in, the business environment will be difficult.

On top of slowing growth we had a lockdown, moratorium and now a sovereign rating downgrade. Does it hurt India in global markets?
Yes, it does. While we are still investment grade by all the three rating agencies, the negative outlook creates further concerns and therefore overseas borrowings may become more expensive. Corporates may have to fork out extra cost to raise money offshore, in sync with the sovereign grade.

NBFCs are kind of unwanted children now. But some global investors have received them well. What happens next?
I struggle to see that overseas fundraising market will come back in a hurry. On one side, business models are challenged, on the other, asset quality is a problem. Also, rating companies will find it quite difficult to assess credit quality after repayment moratorium has been extended by RBI for another three months. We don’t even know, if those accounts will finally slip into bad loans. Those companies availing moratorium will find it challenging to raise capital. The moratorium is helping MSME clients and others, but a big question the market is focused on, is asset quality.

After the bad loans pile up bankers are risk-averse. Despite enormous liquidity they are not willing to lend. How do you break the logjam?
More efforts could be made towards the government taking up some onus of credit risk. A large amount has been infused by way of liquidity. Nobody is borrowing today for investment purpose. There is no capex happening. Unless you see strong confidence in demand, companies will not undertake capex. Rate cuts will not necessarily spur investment or consumption and retail demand in the short term. Rate cuts will of course help lower the burden on P&L and cash flow on account of interest rates.

Many Indian firms have exploited the low global borrowing costs. But global rates are firming up based on risk. What does it mean for Indian companies?
We saw very strong first quarter as far as Indian companies raising debt overseas. We were involved in raising $7.5 billion ourselves and led more than 90% of overseas bonds. However, post Covid-19, the market is almost shut as secondary levels trading vary widely. We have seen significant improvement in yields since then. I suspect the investment-grade market will begin to open up soon, but high-yield issuers from India will have to wait for things to settle down. We recently helped investment-grade issuer REC raise $500 million in international market and the bonds are trading well.
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