Business Line - India Inc’s resource raising via the external commercial borrowing (ECB) route at $5.20 billion in November 2022 is the highest in FY23 so far, going by RBI data. Overseas fundraising in November is 3.63 times what Indian companies mopped up in the preceding month. In October 2022, India Inc raised $1.43 billion via ECBs. Reliance Industries Ltd and Reliance Jio Infocomm Ltd together accounted for about 58% of the resources raised by India Inc. These two companies raised $1.5 billion each. Read more
What are ECBs? ECB stands for external commercial borrowings which is basically a loan availed by an Indian entity from a non resident lender.
Most of these loans are provided by foreign commercial banks and other institutions. It is a loan availed from non-resident lenders with a minimum average maturity of 3 years.
ECBs includes commercial bank loans, buyers' credit, suppliers' credit, securitised instruments such as Floating Rate Notes and Fixed Rate Bonds etc., credit from official export credit agencies and commercial borrowings from Multilateral Financial Institutions.
Advantages: ECBs provide opportunity to borrow large volume of funds. The funds are available for relatively long term. Interest rates are also lower compared to domestic funds.
ECBs are in the form of foreign currency, hence, they enable the corporate to have foreign currency to meet the import of machineries etc. Corporate can raise ECB's from internationally recognised sources such as banks, export credit agencies, international capital markets, etc.
They are used widely in India to facilitate access to foreign money by Indian corporations and PSUs.
Risks in raising money via ECBs: Though companies get attracted to ECB's due to lower interest rates, the comfort level of the borrower depends on how stable the rate of exchange is. Depreciation of the rupee will raise debt servicing burden as compared to what has been worked out at the time of availing of the ECB facility. Thus, the companies might need to incur hedging costs to cover the exchange rate risk.
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