 "Indian firms' external commercial borrowing registration up 84% in FY24")
Registrations by Indian companies for external commercial borrowings (ECBs) almost doubled to $49.2 billion in the financial year 2023-24 (FY24) from $26.6 billion in FY23, according to data from the Reserve Bank of India (RBI).
Net inflow improved to $9.5 billion though the overall cost of ECB loans increased in FY24, primarily due to elevated global benchmark interest rates. Net ECBs to India recorded inflows of less than a $1 billion in FY23.
ECBs disbursements were at $38.4 billion in FY24 compared to $ 23.8 billion in FY23.
A senior executive of State Bank of India said fund availability in the domestic system is under pressure due a high growth in loans in the last few quarters. Highly rated general and finance companies have looked at overseas markets to raise money through ECBs at reasonable rates compared to the domestic market. This trend will continue as many ECB registrations will also be used in FY25 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.
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More than 70 per cent of ECBs raised in FY24were effectively hedged in terms of explicit hedging, rupee denominated loans or loans from foreign parents, limiting the impact of external shocks, according to an article called ‘State of the Economy’ in RBI’s May bulletin.
Even though the end use of ECBs was broad-based during 2023-24, funds for sourcing of capital goods, modernisation and development of infrastructure witnessed the largest increase. “This augurs well for the overall capacity augmentation in the economy and is reflective of private sector investment demand,” said the article.
The overall cost of ECB loans increased in FY24 due to elevated global benchmark interest rates like the secured overnight financing rate. The overall cost of ECB loans increased by 516 basis points between March 2022 and March 2023 due to tightening global financial conditions and rise in international reference benchmark rates.
Another component of the overall cost – the weighted average margin reflecting the risk premium – moderated to 159 basis points (bps) in April-March 2024 from 172 bps a year ago and an average of 181 bps during 2021-22.