In the financial year 2023-24 (FY24), registrations by Indian companies for external commercial borrowings (ECBs) almost doubled to $49.2 billion from $26.6 billion in FY23, according to data from the Reserve Bank of India (RBI).
Net Inflows and Costs
- Net Inflows: Improved to $9.5 billion in FY24, compared to inflows of less than $1 billion in FY23.
- Disbursements: ECB disbursements were at $38.4 billion in FY24, up from $23.8 billion in FY23.
- Cost Increase: The overall cost of ECB loans increased in FY24, primarily due to elevated global benchmark interest rates.
Domestic Fund Availability
A senior executive of State Bank of India highlighted that fund availability in the domestic system is under pressure due to high growth in loans in recent quarters. Highly rated general and finance companies have turned to overseas markets for ECBs at reasonable rates compared to the domestic market. This trend is expected to continue into FY25 with further capital expenditure.
Hedging and Risk Management
More than 70% of ECBs raised in FY24 were effectively hedged through explicit hedging, rupee denominated loans, or loans from foreign parents, limiting the impact of external shocks.
End Use of ECBs
The end use of ECBs was broad-based in FY24. Notably, funds for sourcing of capital goods, modernization, and infrastructure development saw the largest increase, indicating a positive outlook for capacity augmentation and private sector investment demand.
Cost Components
- Global Benchmark Rates: The overall cost of ECB loans increased by 516 basis points between March 2022 and March 2023 due to rising global financial conditions and international benchmark rates.
- Risk Premium: The weighted average margin, reflecting the risk premium, moderated to 159 basis points in FY24 from 172 basis points a year earlier, and an average of 181 basis points during 2021-22.
Multiple Choice Questions (MCQs):
- What was the total registration for ECBs by Indian companies in FY24?
a) $26.6 billion
b) $49.2 billion
c) $9.5 billion
d) $38.4 billion
Answer: b) $49.2 billion - How much did the ECB disbursements amount to in FY24?
a) $26.6 billion
b) $49.2 billion
c) $9.5 billion
d) $38.4 billion
Answer: d) $38.4 billion - What was the net inflow of ECBs to India in FY24?
a) Less than $1 billion
b) $9.5 billion
c) $26.6 billion
d) $49.2 billion
Answer: b) $9.5 billion - Why did the overall cost of ECB loans increase in FY24?
a) Decreased global benchmark interest rates
b) Increased global benchmark interest rates
c) Increased domestic interest rates
d) Decreased domestic interest rates
Answer: b) Increased global benchmark interest rates - What percentage of ECBs raised in FY24 were effectively hedged?
a) Less than 50%
b) Exactly 50%
c) More than 70%
d) Exactly 70%
Answer: c) More than 70% - What was the main reason for Indian companies looking at overseas markets for ECBs?
a) Decreased global interest rates
b) High growth in domestic loans
c) Increased domestic fund availability
d) Decreased demand for capital expenditure
Answer: b) High growth in domestic loans - How much did the overall cost of ECB loans increase by between March 2022 and March 2023?
a) 159 basis points
b) 172 basis points
c) 516 basis points
d) 181 basis points
Answer: c) 516 basis points - What was the weighted average margin for ECB loans in FY24?
a) 159 basis points
b) 172 basis points
c) 181 basis points
d) 516 basis points
Answer: a) 159 basis points