Indian companies' foreign borrowings experienced a significant decline of 20.2% in 2024, dropping to $23.33 billion from $29.22 billion the previous year. This downturn is attributed to the depreciating Indian rupee, which has made overseas debt increasingly expensive due to rising repayment costs and forward cover prices.
The decline follows a substantial increase in foreign loans in 2023, where borrowings more than doubled from $14.38 billion in 2022, marking the sharpest rise in over a decade. Financial consultant Prabal Banerjee noted that without a natural hedge, many Indian firms are unlikely to pursue foreign loans in 2025. He highlighted that the cost difference between local and foreign currency loans for well-rated companies has widened to approximately 200-250 basis points.
The rupee's depreciation poses challenges for companies lacking forward cover against their loans. However, export-oriented firms like Reliance Industries are better positioned to manage these impacts due to their substantial dollar revenues, which provide a natural hedge against currency fluctuations. As the economic landscape evolves, many Indian companies are increasingly turning to local banks for financing solutions amidst these challenges.