India's External Commercial Borrowings Soar: $15.6 Billion Raised in Nine Months

SYNOPSIS

Between April and December 2024, Indian companies saw a significant increase in external commercial borrowings (ECB), driven by favorable global interest rates and reduced risk premiums. Despite emerging challenges in early 2025, such as rising US interest rates, Indian companies continue to diversify their funding sources and manage risks effectively.

India's External Commercial Borrowings reach $15.6 billion in nine months, showcasing significant financial growth and international investment momentum.

Indian companies, including non-banking finance companies (NBFCs), saw a big rise in net external commercial borrowing (ECB) between April and December 2024. Net inflows from ECB almost tripled, going from $5.2 billion in the same period the previous year to about $15.6 billion. This increase was due to better global interest rates and a lower risk premium.

Gross Disbursements: Gross disbursements through the ECB route have risen from $26.1 billion in the same period during 2023 to $36.6 billion between April and December 2024.

Principal Repayments: The total principal repayments were slightly higher at $21 billion in the nine months of the current financial year (9MFY25) compared to $20.7 billion in 9MFY24.

Hedged ECBs: The share of effectively hedged ECBs (euros such as explicitly hedged loans, rupee-denominated loans, and loans by foreign parents) rose from 61.6 percent the previous year to 78.1 percent, substantially reducing their exposure to interest and exchange rate sensitivities.

Growth Triggers:

Global Interest Rates: Indian companies had the advantage of taking advantage of the soft interest rates in international markets, especially when rates were relatively higher at home.

Risk Premium: The phenomenon of favorable environments for raising resources abroad created by a sharp decline in the risk premium for Indian companies arising from the bright growth prospects of the Indian economy, making it possible for any company to make offshore fundraising, including NBFC.

Benchmark Rates: Thus, the overall cost of ECB reduces by 25 bps for April- December 2024 since benchmark rates such as the secured overnight financing rate (SOFR) have reduced up to 85 basis points since March 2024.

In early 2025, however, challenges have emerged despite the positive environment existing in 2024:

Volatility and Experiential Risk Evaluation: Soaring volatility and new perceptions of risk caused by newly minted policies, such as trade policies from American President Donald Trump, have been instrumental in changing the rules of the game.

Interest Rates and Risk Premium: The interest rates in the US are increasing, and risk premiums are also firming up due to currency volatility and other factors, including the Indian rupee.

Future Outlook:

A decline in overseas fundraising by Indian corporates may be somewhat moderated; total cessation is ruled out. Many Indian finance companies are looking to diversify their funding sources, while some corporations have natural hedges due to exports. More than 40 percent of the total ECBs registered from April to December 2024 were meant for capital expenditure, along with significantly more refinancing of ECBs/rupee loans compared to the previous year.

In conclusion the strategic deployment of ECBs by Indian actors in 2024 shows their nimbleness in negotiating global financial markets. The focus would be on managing volatility and utilizing diversified funding sources for growth momentum in 2025.

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