Finance Companies Take Lead In February's ECB Surge

In February, finance companies led the surge in overseas borrowing, accounting for approximately 44 per cent of the total External Commercial Borrowings (ECB) raised, according to data from the Reserve Bank of India (RBI). These firms collectively secured nearly USD 1 billion out of the total USD 2.2 billion raised through ECBs during the month.

During the April-February period of the current fiscal year, companies raised approximately USD 41 billion, marking an increase of around 80 per cent compared to the same period in the previous fiscal year.

Piyush Agarwal, Senior Managing Director and Head of Corporate and Institutional Banking (India) at Mizuho Bank, emphasised the appeal of ECBs for Non-Banking Financial Companies (NBFCs) amidst deposit constraints faced by domestic banks. He noted that international banks have shown a growing appetite for Indian credits, providing competitive terms for funding requirements.

JSW Vijayanagar Metallics emerged as the top borrower in February, securing USD 250 million for its new project. Among NBFCs, Cholamandalam Investment & Finance raised the highest amount (USD 200 million), followed by REC Limited (USD 147.9 million). Export-Import Bank of India and Bajaj Finance also raised significant amounts, at  USD 127 million and USD 125 million respectively.

Madan Sabnavis, Chief Economist at Bank of Baroda, highlighted that the increased borrowing by NBFCs overseas follows the RBI's hike in risk weights, which has raised the cost of capital for them. He noted that apart from NBFCs, infrastructure companies and public sector entities also frequently utilise the ECB route for fundraising.

Companies utilise funds raised through ECB for various purposes including capital expenditure, working capital requirements, asset acquisitions and loan repayments. ECB allows domestic firms to borrow overseas through loans, bonds, or alternative financial instruments.

The expectation of falling interest rates in the US motivates companies to raise funds via ECB, aiming to diversify their funding sources. Additionally, increased capital expenditure by companies contributes to the uptick in overseas borrowing. Moreover, corporates benefit from an interest rate advantage when borrowing from abroad, as they can access funds at lower rates compared to Indian bank lending rates, with borrowing rates often tied to benchmarks like the secured overnight financing rate (SOFR) plus a spread of 200-300 basis points.