The registrations for External Commercial Borrowings (ECBs) by Indian companies almost doubled to $49.2 billion in FY24 from $26.6 billion in FY23. According to the Reserve Bank of India (RBI), the net inflow also improved substantially to $9.5 billion, even though the overall cost of ECB loans increased during 2023-24, primarily due to elevated global benchmark interest rates. Net ECBs to India recorded an inflow of less than $1 billion in FY23.
The disbursement in ECBs was also higher at $38.4 billion in FY24 compared to $23.8 billion in FY23.
A senior State Bank of India executive said that with high growth in loans in the last few quarters, the fund availability in the domestic system has come under pressure. The highly-rated corporates and finance companies have looked at overseas markets to raise money at a reasonable cost through ECBs in comparison with the domestic market. They have been able to do that, and this trend will continue as many ECB registrations are actually used in the current financial year, especially when the capital expenditure cycle is expected to gain further traction. “Of course, the timing of fundraising will be dependent on the market conditions,” the executive said.
According to the latest state of economy report in the RBI bulletin (May 2024), more than 70 per cent of ECBs raised during 2023-24 were effectively hedged in terms of explicit hedging, rupee-denominated loans, or loans from foreign parents, limiting the impact of external shocks.
Even though the end use of ECBs was broad-based during 2023-24, funds raised for sourcing of capital goods, modernisation projects, and development of infrastructure witnessed the largest increases. This augurs well for the overall capacity augmentation in the economy and is reflective of private sector investment demand.
The overall cost of ECB loans increased during 2023-24 due to elevated global benchmark interest rates like the Secured Overnight Financing Rate (SOFR). The overall cost of ECB loans had gone up steeply by 516 basis points between March 2022 and March 2023 due to tightening global financial conditions and a concomitant rise in international reference benchmark rates.
The other component of the overall cost – the weighted average margin reflecting the risk premium – moderated to 159 basis points (bps) during April – March 2024 from 172 bps a year ago and an average of 181 bps during 2021-22.
First Published: May 23 2024 | 11:37 PM IST
