External Commercial Borrowing (ECB) registrations by India Inc shot up about 84 per cent in FY24 to $49.2 billion, against $26.7 billion in FY23, according to the latest RBI data.

This comes amidst high global interest rates and a greater uptick in domestic credit growth.

Net inflows (at $9.5 billion, after taking into account repatriation) under ECBs were substantially higher, vis-a-vis a modest net inflow (of about a $1 billion) recorded in 2022-23.

More than 70 per cent of ECBs raised during FY24 were effectively hedged in terms of explicit hedging, rupee denominated loans or loans from foreign parents, limiting the impact of external shock, RBI officials noted in an article ‘State of the Economy’.

“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 overall capacity augmentation in the economy and is reflective of private sector investment demand,” the officials said.

The overall cost (interest rate plus margin) of ECB loans increased during 2023-24 (to around 7 per cent from about 5 per cent), primarily due to elevated global benchmark interest rates (such as the secured overnight financing rate/ SOFR), reflecting higher global interest rates.

The other component of 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.

External Commercial Borrowings are commercial loans raised by eligible resident entities from recognised non-resident entities. These borrowings have to conform to parameters such as minimum maturity, permitted and non-permitted end-uses, maximum all-in-cost ceiling, etc.