What India Inc's ECB Surge Tells Us

Liberalising ECBs was never meant to replace domestic credit development, but to complement it. The time may be right for policy recalibrations

- Amarendu Nandy, Abhishek Sur

The latest data from the Reserve Bank of India (RBI) shows that external commercial borrowings (ECBs) by Indian corporations reached $11.04 billion in March, a six-year high. For FY25, total ECB filings reached a record $61.18 billion—a 26% year-on-year growth. Notably, non-banking financial companies (NBFCs) accounted for 43% of these inflows, significantly higher than their historical share of 20–37% over the previous five years. Is this surge a reflection of growing corporate ambition and global integration, or does it signal persistent weakness in our domestic credit architecture?

First, the persistent interest rate differential between domestic and international markets has created a textbook case of arbitrage and rational corporate behaviour. JSW Steel, for example, raised $900 million at just 180 basis points (bps) above the secured overnight financing rate (around 4.4% currently). That is significantly cheaper than the domestic marginal cost of funds-based lending rate (MCLR)-linked loans at nearly 9%. The advantage persists even after accounting for hedging costs. Industry data indicates that fully hedged ECBs still offer a 20–30 bp cost advantage over domestic borrowing options. Second, the RBI's liberalised ECB framework, which permits a firm to raise $750 million annually under the automatic route, has made things easier. In March alone, $8.34 billion was raised through this route.