ECB registrations jump five-fold in Q1 as local rates rise

economictimes.indiatimes.com:

infrastructure and services firms, have stepped up plans for overseas borrowing as rising local interest rates make that route of funding cheaper regardless of currency risks. Barring recent volatility, the rupee was relatively stable in the first half of 2023 against the dollar.

External Commercial Borrowing (ECB) registrations registered a five-fold year-on-year jump during April-June to $21.0 billion, Reserve Bank of India (RBI) economists said in the central bank's August Bulletin.

«Since interest rates have also been going up in India, companies that are borrowing are finding an advantage and more importantly since one expects the rupee to be largely stable, the forex risk — which is normally a major component of any overseas borrowing — seems to be on the lower side,» said Madan Sabnavis, chief economist at Bank of Baroda.

On a net basis, ECB inflows of $14.5 billion were recorded in April-June, far exceeding the net inflows of $4.0 billion a year ago.

According to the RBI authors, large corporations supplemented their local sources of financing with foreign funding.

Rising investment demand, particularly in the infrastructure and services space, bolstered the appetite for external funds, they wrote.

«Rates are going up in both places, but we haven't seen rates going up that much in the ECB market compared to the domestic market. In terms of transmission, the MCLRs have gone up.

On top of that you will pay a premium, especially if you are in the infrastructure sector,» Sabnavis said.

Policy Rates Higher
The RBI has raised the repo rate by a total of 250 basis points to 6.50% from May 2022 to February 2023 to bring down elevated inflation. The US Federal Reserve on the other hand has lifted interest rates by 525 bps