According to article titled ‘State of Economy’ published by Reserve Bank of India (RBI) in its March bulletin, net inflows from External Commercial Borrowings (ECBs) have surged over 2 times, to USD 18.4 billion in 10 Months (from April, 2024 to January, 2025) of Financial Year 2024-25 (FY25), against FY24, amid declining costs of overseas fund raise.
- It further showed that ECB registrations and disbursements reached to USD 47.3 billion and USD 42.3 billion, respectively, in 10MFY25, on a cumulative basis. These figures were significantly higher compared to those registered in the corresponding period of last year.
Key Findings:
i.Net Outflows: As per the RBI’s data, ECB outflows due to principal repayments reached at USD 23.9 billion in 10MFY25.
ii.Net Inflows in FY24: The data showed that net inflows under ECBs were USD 9.5 billion in FY24, significantly higher than the levels registered in FY23.
iii.Decline in SOFR: RBI’s data underscored about the persistent decrease in the Secured Overnight Financing Rate (SOFR) since August 2024, which has contributed to a reduction in the overall costs of ECBs.
- The overall cost of ECBs decreased by 129 basis points (bps), compared with the corresponding period of the last year.
- Additionally, the global benchmark interest rates, such as SOFR have decreased up to 85 bps since March 2024, thus reducing the overall cost of ECBs by 25 bps in 10MFY25.
Note: SOFR is a benchmark interest rate for dollar-denominated derivatives and loans that replaced London Interbank Offered Rate (LIBOR).
iv.Decrease in weighted average margin for interest rates: The data revealed that the weighted average margin for interest rates over the reference rate dropped from 1.33% (in January 2024) to 0.98% (in January 2025).
v.Distribution of ECBs registrations: Of the total ECBs registered in 10MFY25, USD 6.7 billion was for modernization, new projects and infrastructure development compared to USD 10.5 billion in 10MFY24.
- While, registrations for import/local sourcing of capital goods has decreased from USD 10.3 billion (10MFY24) to USD 3.7 billion (10MFY25).
- Those for refinancing old ECBs and rupee loans reached USD 9.3 billion in 10MFY25, increase from USD 5.3 billion in 10MFY24.
Recent Related News:
The RBI has introduced new credit reporting rules. It has mandated that all lenders must update credit bureau records every 15 days instead of the previous monthly cycle. This direction came into effect from January 01, 2025.
- This new change aims to enhance credit score accuracy and ensure timely reflection of financial activities of borrowers.
